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on Public Economics |
| By: | Yutao Han (CREA, University of Luxembourg); Patrice Pieretti (CREA, University of Luxembourg); Benteng Zou (CREA, University of Luxembourg) |
| Abstract: | In our paper we show that when countries compete in taxes and infrastructures, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure tax competition. The divergence is even worse when the competing jurisdictions differ in the quality of their institutions. If tax revenue is used to gauge the desirability of coordination, our model shows that imposing a uniform tax rate is Pareto-inferior to the non cooperative equilibrium when countries compete in taxes and infrastructures. This result is completely reversed with pure tax competition if countries are not too uneven in size. If a minimum tax rate lying between those resulting from the non-cooperative equilibrium is set, the low tax country will never be better off. Finally the paper shows that the potential social welfare gains from tax harmonization crucially depend on how heterogeneous the competing countries are. |
| Keywords: | Tax competition, infrastructures, tax coordination, tax revenue, social welfare |
| JEL: | H21 H87 H73 F21 C72 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-02&r=pbe |
| By: | Cristina Bodea; Adrienne LeBas |
| Abstract: | How do social contracts come into being? This paper argues that norm adoption plays an important and neglected role in this process. Using novel data from urban Nigeria, we examine why individuals adopt norms favoring a citizen obligation to pay tax where state enforcement is weak. We find that public goods delivery by the state produces the willingness to pay tax, but community characteristics also have a strong and independent effect on both social contract norms and actual tax payment. Individuals are less likely to adopt pro-tax norms if they have access to community provision of security and other services. In conflict-prone communities, where “self-help” provision of club goods is less effective, individuals are more likely to adopt social contract norms. Finally, we show that social contract norms substantially boost tax payment. This paper has broad implications for literatures on state formation, taxation, clientelism, and public goods provision. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2013-02&r=pbe |
| By: | International Monetary Fund |
| Keywords: | Economic growth;Fiscal reforms;Government expenditures;Tax policy;Global competitiveness;Corporate sector;Selected issues;Portugal; |
| Date: | 2013–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:13/19&r=pbe |
| By: | Edoardo di Porto (EQUIPPE (Universités de Lille) and Sapienza (Universita di Roma)Dipartimento MEMOTEF, Via del Castro Laurenziano 9, 00161 Roma, Italy); Vincent Merlin (CREM CNRS and University of Caen Basse Normandie, 19 rue Bloch 14032 Caen, France); Sonia Paty (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | Cooperation among local governments has been encouraged to enable the aggregation of resources and improved public sector efficiency. However, if cooperation through the joint delivery of local public services is likely to be welfare enhancing for the agglomeration, but will lead to losses for one of the parties, it is unlikely that the losing municipality will cooperate. Using a unique panel dataset of 30,000 French municipalities for 1995-2003, we estimate the relationship between cooperation decision and the fiscal revenues raised to provide local public goods. We employ a new econometric strategy based on Lee (1978), developing a non linear method controlling for fixed effect, endogenous covariates and cluster standard error. We find evidence that a positive difference between the expected fiscal revenues of a cooperating locality and the actual revenues realized by an isolated locality significantly increases the probability of joining an inter-municipal community. |
| Keywords: | inter-municipal cooperation, fiscal revenues, bivariate response variable, panel data,endogeneity |
| JEL: | C3 H2 H4 H7 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1304&r=pbe |
| By: | Matthias Weber (CREED, University of Amsterdam); Arthur Schram (CREED, University of Amsterdam) |
| Abstract: | In a competitive market with taxed transactions, it does not matter under full rationality which side of the market legally transfers the taxes. In the labor market, a tax levied on employers and a corresponding income tax levied on employees are equivalent. With boundedly rational agents, this equivalence is no longer obvious. If people react differently to the two taxes this has direct impact on policy making, political economics, and optimal taxation theory. This paper examines how people react to these duties in a real effort laboratory experiment. We study the differential effects of the two types of taxes on preferences concerning the size of the public sector, subjective well-being, labor supply, and on-the-job performance. To elicit public-sector-size preferences in the laboratory we introduce a novel, incentive compatible approach. Our findings suggest that employer-side taxes induce preferences for a larger public sector. Our findings also sugges t that subjective well-being is higher while both labor supply and on-the-job performance are lower when the taxes are levied on employers. Furthermore, there are gender effects, e.g., women's subjective well-being appears to be more sensitive to framing than men's, while men's labor supply is more sensitive to framing than women's. |
| Keywords: | tax perception; liability side equivalence; political economy; labor supply |
| JEL: | C91 H22 H30 |
| Date: | 2013–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130030&r=pbe |
| By: | Ronny Freier; Benny Geys; Joshua Holm |
| Abstract: | Theoretical work based on social identity theory and in-group favoritism predicts that increased population diversity (e.g., due to immigration) reduces support for redistributive public policies. In this article, we add to the empirical literature testing this prediction in three ways. First, rather than ethno-linguistic or racial heterogeneity, we analyze religious diversity, which in many countries is an increasingly important source of diversity. Second, to account for the potential endogeneity of heterogeneity, we analyze an exogenous shock in diversity due to the German reunification. Finally, we assess shifts in local individuals' social identification after immigration took place, which, while untested in previous contributions, is a critical theoretical mechanism. Our results - using tax and spending decisions of 2031 Bavarian municipalities over the 1983-2005 period - indicate that Catholic municipalities in particular significantly reduced their level of taxes and spending in response to non-Catholic immigration. These effects arise only after the first post-reunification local elections, suggesting a critical mediating role of the democratic process. |
| Keywords: | local identity, fiscal policy, redistribution, German reunification, diff-in-diff estimation |
| JEL: | H10 H11 H77 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1266&r=pbe |
| By: | Oscar Parkyn; Tugrul Vehbi |
| Abstract: | This paper investigates the macroeconomic effects of fiscal policy in New Zealand using a structural Vector Autoregression (SVAR) model. The model is the five-variable structural vector autoregression (SVAR) framework proposed by Blanchard and Perotti (2005), further augmented to allow for the possibility that taxes, spending and interest rates might respond to the level of the debt over time. We examine the dynamic responses of output, inflation and the interest rate to changes in government spending and revenues and analyse the contribution of shocks to New Zealand's business cycle for the period 1983:1-2010:2. We find that the effects of government expenditure shocks in New Zealand appear to be positive but small in the short-run at the cost of higher interest rates and lower output in the medium to long-run. The sign of the effects of tax policy changes are less clear cut, but again the effects on GDP appear similarly modest. Past fiscal policy is analysed through a historical decomposition of the shocks in the model. This suggests that discretionary fiscal policy has had a generally pro-cyclical impact on GDP over the last fifteen years, and a material impact on the real long-term interest rate. A fiscal expansion has a positive but limited impact on inflation. |
| Keywords: | Fiscal policy, business cycle fluctuations, vector autoregression, debt feedback |
| JEL: | C32 E32 E62 |
| Date: | 2013–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-04&r=pbe |
| By: | A. B. Atkinson (Nuffield College, Oxford and Institute for New Economic Thinking at the Oxford Martin School); J. E. Søgaard (University of Copenhagen and the Danish Ministry of Finance) |
| Abstract: | We use historical publications and – for more recent years – micro-data from the income tax and wealth tax returns to estimate the development in income inequality in Denmark over the last 140 years. The paper breaks new ground in treating the specific features of the Danish Tax system and in analysing the implications of the switch from joint to individual taxation. We show that income inequality have declined substantially over the last century with an income share for the top 1 per cent dropping from 27.6 per cent from its peak in 1917 to 6.4 in 2010. However the decline is not simply a secular downward trend consistent with the downward part of a Kuznets curve. Instead there seems to be several distinct phases, interleaved with periods of stability. |
| Keywords: | Income inequality, Income distribution, Wealth distribution, Top incomes, Taxation, Denmark |
| JEL: | D31 H2 J3 N3 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:13-01&r=pbe |
| By: | Holger Strulik; Timo Trimborn |
| Abstract: | Most of the discussion about fiscal stimulus focuses on the multiplier of government spending on impact. In this paper we shift the focus to the multiplier at the end, i.e. to the period in which a deficit spending program terminates. We show that recent time series analyses as well as economic models of different schools of thought predict that the multiplier turns negative before spending expires. This means that aggregate output at the time of expiry of fiscal stimulus is predicted to be lower than it could be without deficit spending. We set up a simple model that explains this phenomenon. Using phase diagram analysis we prove that the aggregate capital stock at the time of expiry of fiscal stimulus is lower than it would be without the deficit spending program. This fact explains why aggregate output is below its laissez faire level as well. We then calibrate an extended version of the model for the US and demonstrate how fiscal stimulus slows down recovery from a recession in the medium-run. |
| Keywords: | fiscal stimulus; government spending; output multiplier; economic recovery |
| JEL: | E60 H30 H50 O40 |
| Date: | 2013–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:got:cegedp:150&r=pbe |
| By: | Danny Cassimon (University of Antwerp); Marin Ferry (LEDa, UMR DIAL-Paris-Dauphine); Marc Raffinot (LEDa, UMR DIAL-Paris-Dauphine); Bjorn Van Campenhout (International Food Policy Research Institute (IFPRI)) |
| Abstract: | (english) After two debt relief initiatives launched in 1996 (the Heavily Indebted Poor Countries, HIPC Initiative) and in 1999 (The enhanced HIPC initiative), the G7 decided to go further by cancelling the remaining multilateral debt for these HIPC countries through the Multilateral Debt Relief Initiative (MDRI, 2005). A few papers tried to assess the desired fiscal response effects of those initiatives. This paper uses an extended dataset and alternative econometric techniques in order to tackle methodological issues as endogeneity and fixed effects. We found that debt relief and especially the enhanced HIPC initiative have had a positive impact on the total domestic revenue and the public investment (as percentages of the GDP). Thanks to our large observation span, we also observed that the MDRI led to a significant additional improvement of the level of public investment and domestic revenues ratio, although these effects are smaller than the HIPCs ones. _________________________________ (français) Après deux initiatives de réduction de dette (PPTE I fin 1996 et PPTE II en 1999), le G7 décida d’annuler la totalité de la dette multilatérale (Initiative d’Annulation de la Dette Multilatérale, IADM en 2005). Quelques travaux ont essayé d’évaluer l’impact de ces mesures sur les finances publiques des pays bénéficiaires. Ce travail utilise une base de données plus étendue et des méthodes économétriques alternatives pour tenir compte de l’endogénéïté et des effets fixes. Nous trouvons que les réductions de dette (en particulier l’initiative PPTE II) ont eu un impact positif sur la pression fiscale et sur les investissements publics (en pourcentage du PIB). Grâce à l’extension de la période d’étude, nous observons également que l’IADM a un effet similaire, quoique moins persistent. |
| Keywords: | HIPC, MDRI, Debt relief, Fiscal revenue, Public investment, Fiscal response. |
| JEL: | H20 H54 H63 O55 F34 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:dia:wpaper:dt201301&r=pbe |
| By: | O. Chisari; Antonio Estache; Gaëtan Nicodème |
| Abstract: | This paper assesses the effects of applying VAT or a sales tax on (intermediate or final) sales of the financial sector. It uses a CGE Model calibrated for a small open economy. It highlights the differentiated sectoral and redistributional effects of these taxes and shows the importance of the financial openness of the economy on these results. |
| Keywords: | taxation; financial sector; VAT; sales tax; modeling; Belgium |
| JEL: | H20 H25 H30 H87 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/136761&r=pbe |
| By: | International Monetary Fund |
| Keywords: | Article IV consultation reports;Economic recovery;Economic growth;Fiscal policy;Fiscal reforms;Fiscal sustainability;Reserves;Banking sector;Economic indicators;Post-program monitoring;Staff Reports;Public information notices;Latvia; |
| Date: | 2013–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:13/28&r=pbe |
| By: | International Monetary Fund |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Fiscal consolidation;Subsidies;Fiscal reforms;Financial sector;Monetary policy;Floating exchange rates;Economic indicators;Debt sustainability analysis;Millennium Development Goals;Public information notices;India; |
| Date: | 2013–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:13/37&r=pbe |
| By: | Avram, Silvia; Figari, Francesco; Leventi, Chrysa; Levy, Horacio; Navicke, Jekaterina; Matsaganis, Manos; Militaru, Eva; Paulus, Alari; Rastrigina, Olga; Sutherland, Holly |
| Abstract: | We compare the distributional effects of policy changes presented as fiscal consolidation measures in nine EU countries that experienced large budget deficits following the financial crisis of the late 2000s and subsequent economic downturn, using the EU microsimulation model EUROMOD. The nine countries, Estonia, Greece, Spain, Italy, Latvia, Lithuania, Portugal, Romania and the UK, chose different policy mixes to achieve varying degrees of fiscal consolidation. We find that the burden of fiscal consolidation brought about through the first round effects of increases in personal taxes, cuts in spending on cash benefits and reductions in public sector pay is shared differently across the income distribution in the nine countries. In Greece, Spain, Italy, Latvia, Romania and the UK the better off lose a higher proportion of their incomes than the poor. At the other extreme, in Estonia, the poor lose a higher proportion than the rich. In Lithuania and Portugal the burden of fiscal consolidation falls more heavily on the poor and the rich than it does on those with middle incomes. Including increases in VAT alters the comparative picture by making the policy packages appear more regressive, to varying extents. |
| Date: | 2013–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em2-13&r=pbe |