|
on Public Economics |
| By: | James Mak (UHERO, University of Hawaii at Manoa) |
| Abstract: | Recent research on the excise tax effects of the property tax in small, multi-sector open economies suggests that the property tax may not be fully forward shifted to consumers as previously believed. I adapt this analysis to examine whether local hotel property taxes in Hawaii are fully passed on to hotel guests as lawmakers had intended. We conclude that full forward shifting is unlikely. I argue that an excise/sales tax on hotel occupancy is preferable to the property tax as a tourist tax. |
| Keywords: | Property tax, excise tax effects, hotel occupancy tax, hotel property tax |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:hae:wpaper:2013-15&r=pbe |
| By: | Shigeo Morita (Graduate School of Economics, Osaka University) |
| Abstract: | This paper examines the design of a tax policy applied to the consumption of durable goods and labor income. We consider cases wherein the government cannot commit to a tax policy in the second period. If the type of taxpayers is unrevealed, it is optimal to tax the durable goods consumption of a high-income earner and subsidize that of a low-income earner. On the other hand, when the type of taxpayers is revealed, imposing a positive tax rate on a high-income earnerfs durable goods consumption is desirable. This implies that the government should design taxes on durable goods consumption to be progressive and supplement its optimal tax policies. |
| Keywords: | Commitment, Optimal Taxation, Time consistency |
| JEL: | D82 H21 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1432&r=pbe |
| By: | Panayiotis Nicolaides |
| Abstract: | This paper presents an evolutionary theory of public good provision. The framework analyses the relationship between endogenous tax compliance norms, formed by the interactions of rationally-bounded individuals in a network, and the quality of institutions that collect taxes and distribute the public good to the individuals. Conditions for the level of public good utility are derived and illustrated on the "Public Good Provision Hypersurface"; a two-dimensional manifold that describes the relationship between norms, institutional quality and public good provision. I show that the effectiveness of the government to collect taxes increases the determinacy of public good provision but does not ensure its maximisation, which depends also on the level of wasteful government expenditure. If the government is ineffective in performing audits, the welfare from public good provision becomes subject to social norms. Lastly, a condition is derived at which social norms of tax compliance can act as a substitute for enforcement and can result in the maximisation of public good utility. |
| Keywords: | Taxation; Tax compliance; Social norms Public goods, Government waste |
| JEL: | H26 H41 C73 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0046&r=pbe |
| By: | Fabian Kindermann (Institute for Macroeconomics and Econometrics, University of Bonn); Dirk Krueger (Department of Economics, University of Pennsylvania) |
| Abstract: | n this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations. |
| Keywords: | Progressive Taxation, Top 1%, Social Insurance, Income Inequality |
| JEL: | E62 H21 H24 |
| Date: | 2024–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-036&r=pbe |
| By: | Tim Schwarzmüller; Maik Wolters |
| Abstract: | We provide a systematic analysis of fiscal consolidation in a medium-scale dynamic general equilibrium model. Our results show that the choice of the consolidation instrument is very important, not only with respect to the short- and long-run output effects of the different consolidation strategies, but also regarding the welfare effects and the distributional consequences. Moreover, we show that these aspects become even more important if fiscal consolidation has to be conducted at a binding zero lower bound on nominal interest rates because in this case the negative short-run output costs increase. Our comprehensive analysis of the transmission channels of various fiscal consolidation measures shows that in particular the presence of credit-constrained households who cannot smooth consumption has a large impact on the overall output and welfare effects of fiscal consolidation. Further, it turns out to be important whether a fiscal instrument directly affects private production factors negatively as it is the case for consolidation via government investment and taxes on labor and capital. In these cases the short-run output contraction is large and persistent because either the private or the public capital stock decreases. By contrast, for a consolidation via government consumption, transfers or the consumption tax rate, output recovers much faster |
| Keywords: | fiscal consolidation, government debt, distortionary taxes, zero lower bound, welfare, monetary-fiscal policy interaction |
| JEL: | E32 E62 E63 H61 H62 H63 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1963&r=pbe |
| By: | Albrizio, Silvia; Lamp, Stefan |
| Abstract: | This paper investigates the relationship between fiscal consolidation, business plans and firm investment. Based on a detailed narrative of tax changes in Germany covering 40 years of fiscal adjustments, we define and exploit the exogenous variation of tax bills to quantify the effect of tax changes on firm future investment plans as well as on realized investment. We find that firms in the manufacturing sector revise downwards their planned investment by about 4% subsequently to a tax increase equal to 1% of the value added in the total manufacturing industry. On the contrary realized investment growth drops by around 8% at impact. Furthermore we find that income and consumption taxes are most harmful to investment and that firms base their investment plans considering laws currently under discussion, anticipating future tax changes. Not taking into account this anticipation effect would lead to strongly biased estimates. |
| Keywords: | Firm investment, Fiscal shocks, Narrative identification, Business confidence |
| JEL: | E22 E62 H32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2014/10&r=pbe |
| By: | Arrazola, María; de Hevia, José; Romero, Desiderio; Sanz-Sanz, José Félix |
| Abstract: | This paper shows the utility of the elasticity of reported income to assess tax reforms in detail from the perspectives of tax revenue and well-being. We provide evidence of the value of the elasticity of reported income in Spain given the variations in marginal rates of the Personal Income Tax. The mean value of this parameter for the entire Spanish territory is 1,541. Nevertheless, we confirm the existence of considerable heterogeneity in the value of this elasticity depending on taxpayers’ characteristics. Based on these estimated elasticities, we make a detailed assessment of the impact of the recent increase in marginal tax rates that Spain approved in 2012. |
| Keywords: | Personal income tax, Taxable income elasticity, Excess burden, Tax inefficiency, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwcpf:3593&r=pbe |
| By: | Shigeo Morita (Graduate School of Economics, Osaka University) |
| Abstract: | In this study, we reconsider the optimal non-linear tax problem with the public goods from the perspective of the commitment issue and examine how it affects the condition of the public goods provision. We show that the Samuelson rule should be modified when the government cannot commit and the skill types of taxpayers are revealed. Even if taxpayers have the same preference, which is separable and additive with respect to consumption and leisure, the Samuelson rule breaks down. Our analysis focuses on the effect of commitment issue on the marginal cost of public funds and the level of public goods provision. Our findings imply that the level of investment in public goods may be excessive in comparison to the case where the commitment issue is not considered. |
| Keywords: | Public goods provision, Optimal Taxation, Time consistency |
| JEL: | D82 H21 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1431&r=pbe |
| By: | Jara Tamayo, Holguer Xavier; Leventi, Chrysa |
| Abstract: | This paper presents baseline results from the latest version of EUROMOD (version G2.1), the tax-benefit microsimulation model for the EU. First, we briefly report the process of updating EUROMOD. We then present indicators for income inequality and risk of poverty using EUROMOD and discuss the main reasons for differences between these and EU-SILC based indicators. We further compare EUROMOD indicators across countries and over time between 2009 and 2013. Finally, we provide estimates of marginal effective tax rates (METR) for all 27 EU countries in order to explore the effect of tax and benefit systems on work incentives at the intensive margin. Throughout we highlight both the potential of EUROMOD as a tool for policy analysis and the caveats that should be borne in mind when using it and interpreting results. This paper updates the work reported in EUROMOD Working Paper EM13/2013. |
| Date: | 2014–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em18-14&r=pbe |
| By: | Nicholas Kilimani (Department of Economics, University of Pretoria) |
| Abstract: | The double dividend hypothesis contends that environmental taxes have the potential to yield multiple benefits for the economy. However, empirical evidence of the potential impacts of environmental taxation in developing countries is still limited. This paper seeks to contribute to the literature by exploring the impact of a water tax in a developing country context, with Uganda as a case study. Policy makers in Uganda are exploring ways of raising revenue by taxing environmental goods such as water. Whereas their primary focus is to raise revenue, we demonstrate how taxes on environmental goods can yield other benefits beyond addressing a country’s fiscal needs. This study employs a computable general equilibrium model to shed light on the impact of a water tax policy when a tax is accompanied by a recycling scheme of the same magnitude. We seek to establish whether taxation and recycling can induce more growth, employment and industry output. The results show that a mechanism which leaves a neutral fiscal balance yields dividends for the economy. In other words, whatever the degree of regressivity resulting from the environmental tax, it is possible to design a recycling scheme that renders the tax policy to be beneficial to the economy. |
| Keywords: | Environmental Taxation; Revenue recycling; Double dividend; Economic growth |
| JEL: | C68 H23 E62 Q52 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201451&r=pbe |
| By: | Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | This note characterizes the optimal base for commodity taxation in the presence of administrative fixed costs varying across goods. For low tax rates, the optimal base only comprises commodities whose discouragement index is greater than the ratio of their administrative costs to the tax they yield. An illustration with UK data shows that a category of goods should be taxed only if the revenue generated on this category is at least ten times greater than its administrative fixed cost. The cost imputable to the category of goods taxed at the standard rate would be at most 6 percent of total VAT revenue.Theadministrationcostassociatedwithcategoriesofgoodscurrently tax free could justify exemption. |
| Keywords: | indirect taxation; VAT; tax base; administrative costs |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00731095&r=pbe |
| By: | Thomas Meissner; Davud Rostam-Afschar; ; |
| Abstract: | This paper tests whether the Ricardian Equivalence proposition holds in a life cycle consumption laboratory experiment. This proposition is a fundamental assumption underlying numerous studies on intertemporal choice and has important implications for tax policy. Using nonparametric and panel data methods, we nd that the Ricardian Equivalence proposition does not hold in general. Our results suggest that taxation has a signicant and strong impact on consumption choice. Over the life cycle, a tax relief increases consumption on average by about 22% of the tax rebate. A tax increase causes consumption to decrease by about 30% of the tax increase. These results are robust with respect to variations in the diculty to smooth consumption. In our experiment, we nd the behavior of about 62% of our subjects to be inconsistent with the Ricardian proposition. Our results show dynamic eects; taxation in uences consumption beyond the current period. |
| Keywords: | Ricardian Equivalence, Taxation, Life Cycle, Consumption, Laboratory Experiment |
| JEL: | H55 H21 E30 E32 E60 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2014-062&r=pbe |
| By: | Mark Huggett (Department of Economics, Georgetown University); Alejandro Badel (Research Division, Federal Reserve Bank of St. Louis) |
| Abstract: | We assess the consequences of substantially increasing the marginal tax rate on U.S. top earners using a human capital model. The top of the model Laffer curve occurs at a 53 percent top tax rate. Tax revenues and the tax rate at the top of the Laffer curve are smaller compared to an otherwise similar model that ignores the possibility of skill change in response to a tax reform. We also show that if one applies the methods used by Diamond and Saez (2011) to provide quantitative guidance for setting the tax rate on top earners to model data then the resulting tax rate exceeds the tax rate at the top of the model Laffer curve. |
| Keywords: | Human Capital, Marginal Tax Rates, Inequality, Laffer Curve |
| JEL: | D91 E21 H2 J24 |
| Date: | 2014–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~14-14-02&r=pbe |
| By: | Paul Carrillo (George Washington University); Dina Pomeranz (Harvard Business School, Entrepreneurial Management Unit); Monica Singhal (Harvard University) |
| Abstract: | Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection. |
| JEL: | H25 H26 O23 O38 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:15-026&r=pbe |
| By: | Paul Maarek; Renaud Bourlès; Michael T.Dorsch (Université de Cergy-Pontoise, THEMA; Ecole Centrale Marseille, CNRS & EHESS; Central European University) |
| Abstract: | Reductions in the generosity of welfare benefits and less progressive taxation have decreased the redistributive impact of fiscal policy since the mid-1990’s across the advanced democracies. We argue that the strong increase in the diversity of goods observed those last decades may have modified preferences for redistribution differently across groups in society and affected the political equilibrium tax rate. We show that if the share of diversified goods compared to that of basic (necessary) goods in the consumption bundle sufficiently increases with income, relatively rich consumers could disproportionately benefit from an increase in the diversity of goods. Consequently we show in a probabilistic voting model that this could lead to a decrease in the equilibrium tax rate. We then empirically demonstrate, using fixed effect regressions over a a panel of OECD countries, that there exists a strong correlation between our proxies for the diversity of goods and our proxies for the degree of fiscal redistribution. |
| Keywords: | Redistribution, Diversity of goods, Taxation, Probabilistic voting |
| JEL: | D72 D78 H24 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-21&r=pbe |
| By: | Eva Schlenker; Kai D. Schmid |
| Abstract: | In this paper, we estimate the effect of changes in capital income shares on inequality of gross household income. Using EU-SILC data covering 16 EU countries from 2005 to 2011 we find that the level of capital income shares is positively associated with the concentration of gross household income. Moreover, we show that the transmission of a shift in capital income shares into the personal distribution of income depends on the concentration of capital income in an economy. At the mean of the distribution of capital income a 1 percentage point increase of the capital share is associated with a 0.8 percentage point increase of the Gini coefficient of gross household income. Our findings imply that in many industrialized countries income inequality has by no means evolved independently from the observed structural shift in factor income towards a higher capital income share over the last decades. |
| Keywords: | Factor Income Shares, Income Inequality, EU-SILC, Fixed Effects |
| JEL: | D31 D33 E6 E25 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:109&r=pbe |
| By: | Stylianos Asimakopoulos; James Malley; Konstantinos Angelopoulos |
| Abstract: | This paper examines quantitatively the extent of progressivity or regressivity of optimal labour income taxation in a model with skill heterogeneity, endogenous skill acquisition and a production sector with capital-skill complementarity. We Â…find that wage inequality driven by the resource requirements of skill-creation implies progressive labour income taxation in the steady-state as well as along the transition path from the exogenous to optimal policy steady-state. In particular, in the steady state, skilled labour income is taxed about 40% more than unskilled labour income. We further Â…nd that these results are explained by a lower work time elasticity for skilled versus unskilled labour which results from the introduction of the skill acquisition technology. |
| Keywords: | optimal progressive taxation, skill premium, allocative efficiency |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:14/12&r=pbe |
| By: | Simon Voigts; ; ; |
| Abstract: | Conventional wisdom states that the statutory split of payroll taxa- tion between rms and workers is of no macroeconomic relevance, because the tax incidence is fully determined by the market structure. This pa- per breaks with this view by establishing a theoretical link between the statutory split and the average volatility of prices and wages. It is shown that shifting taxation towards workers signicantly reduces the volatility in nominal variables without entailing long-run redistribution. The gain in stability of prices and wages reduces ineciencies in the equilibrium allocation of the stochastic model and thereby reduces welfare costs of business cycle uctuations. In a standard DSGE model, welfare costs un- der the full taxation of rms are 11.25% larger than under the full taxation of workers. |
| Keywords: | Payroll taxes, social security, business cycles, automatic stabilizers, optimal taxation |
| JEL: | H55 H21 E30 E32 E60 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2014-061&r=pbe |
| By: | Yuting Bai; Tatiana Kirsanova |
| Abstract: | This paper studies discretionary non-cooperative monetary and …fiscal policy stabilization in a New Keynesian model, where the …fiscal policymaker uses a distortionary tax as the policy instrument and operates with long periods between optimal time-consistent adjustments of the instrument. We demonstrate that longer …fiscal cycles result in stronger complementarities between the optimal actions of the monetary and …fiscal policymakers. When the …fiscal cycle is not very long, the complementarities lead to expectation traps. However, with a sufficiently long …fiscal cycle –one year in our model –no learnable time-consistent equilibrium exists. Constraining the …fiscal policymaker in its actions may help to avoid these adverse effects. |
| Keywords: | Monetary and fiscal policy interactions, distortionary taxes, discretionary policy, LQ RE models |
| JEL: | E31 E52 E58 E61 C61 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:66983445&r=pbe |
| By: | Yonghong An (Texas A&M University); Kai Zhao (University of Connecticut); Rong Zhou (University of Connecticut) |
| Abstract: | This paper empirically investigates the determinants of aggregate health expenditure in a panel of OECD countries from 1980-2005. We differ from most existing studies by testing some new determinants motivated by recent theoretical advances in the literature. We find that a one percentage increase in public pension payments per elderly person leads to approximately a 1=3 percentage increase in aggregate health spending, and this effect is significant and robust across a variety of model specications. A back of the envelope calculation based on this estimate suggests that the expansion of the public pension program on average accounts for approximately over one fifth of the rise in aggregate health expenditure as a share of GDP in the set of OECD countries during 1980-2005. In addition, we find that the estimated effect of GDP per capita in our model ranges from 0.66 to 0.80, which is consistent with the results from some recent studies, and thus further reinforces the finding in the literature that health care is not a luxury good. Finally, our results show that the political factors do not significantly affect aggregate health expenditure, though they have been found to be important for understanding public health spending in existing studies. |
| Keywords: | Aggregate Health Expenditure, Public Pension, Labor Supply |
| JEL: | H51 I1 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2014-27&r=pbe |
| By: | Roy Cerqueti; Marcel Ausloos |
| Abstract: | This paper discusses region wealth size distributions, through their member cities aggregated tax income. As an illustration, the official data of the Italian Ministry of Economics and Finance has been considered, for all Italian municipalities, over the period 2007-2011. Yearly data of the aggregated tax income is transformed into a few indicators: the Gini, Theil, and Herfindahl-Hirschman indices. On one hand, the relative interest of each index is discussed. On the other hand, numerical results confirm that Italy is divided into very different regional realities, a few which are specifically outlined. This shows the interest of transforming data in an adequate manner and of comparing such indices. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1410.4922&r=pbe |
| By: | Tariq Ahmad Mir; Marcel Ausloos; Roy Cerqueti |
| Abstract: | The yearly aggregated tax income data of all, more than 8000, Italian municipalities are analyzed for a period of five years, from 2007 to 2011, to search for conformity or not with Benford's law, a counter-intuitive phenomenon observed in large tabulated data where the occurrence of numbers having smaller initial digits is more favored than those with larger digits. This is done in anticipation that large deviations from Benford's law will be found in view of tax evasion supposedly being widespread across Italy. Contrary to expectations, we show that the overall tax income data for all these years is in excellent agreement with Benford's law. Furthermore, we also analyze the data of Calabria, Campania and Sicily, the three Italian regions known for strong presence of mafia, to see if there are any marked deviations from Benford's law. Again, we find that all yearly data sets for Calabria and Sicily agree with Benford's law whereas only the 2007 and 2008 yearly data show departures from the law for Campania. These results are again surprising in view of underground and illegal nature of economic activities of mafia which significantly contribute to tax evasion. Some hypothesis for the found conformity is presented. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1410.2890&r=pbe |
| By: | Lorenzo Menna; Patrizio Tirelli |
| Abstract: | In the workhorse DSGE model, the optimal steady state inflation rate is near to zero or slightly negative and inflation is almost completely stabilized along the business cycle (Schmitt-Grohè and Uribe, 2011). We reconsider the issue, allowing for agent heterogeneity in the access to the market for interest bearing assets. We show that inflation reduces inequality and that LAMP can justify relatively high optimal inflation rates. When we calibrate the share of constrained agents to fit the wealth Gini index for the US, the optimal inflation rate is well above 2%. The optimal response to shocks is also a¤ected. Rather than using public debt to smooth tax distortions, the Ramsey planner front loads tax rates and reduces public debt variations in order to limit the redistributive e¤ects of debt service payments. |
| Keywords: | trend in�ation, monetary and �scal policy, Ramsey plan, Limited Asset Market Participation. |
| JEL: | E52 E58 J51 E24 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:284&r=pbe |
| By: | Miriam Rehm; Kai Daniel Schmid; Dieter Wang |
| Abstract: | In this paper we explore the reasons for the trend reversal in the development of household market income inequality in Germany in the second half of the 2000s. We analyse to what extent the increasing relevance of capital income as well as the rising share of atypically employed persons have affected the development of income inequality over the last two decades. We use household data from the German Socio-Economic Panel from 1991-2011 and decompose market income into three income sources: (1) household labour income from full-time work, (2) household labour income from atypical work, and (3) household capital income. We apply the factor decomposition method suggested by Shorrocks (1982) to analyse the contribution of these income forms to overall inequality. Our results suggest that changes in the distribution of capital income were a key factor both in the strong increase of inequality in the first half of the 2000s and in the subsequent trend reversal. This finding contrasts with the reasoning that labour market developments were the main cause behind changes in inequality. |
| Keywords: | Market income inequality, inequality decomposition, SOEP |
| JEL: | D31 D33 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp690&r=pbe |
| By: | Platon Monokroussos |
| Abstract: | The present paper studies the evolution of the Greek public debt ratio under different assumptions regarding the size and the degree of persistence of fiscal multiplies, the implementation profile of the applied fiscal adjustment and the response of financial markets to fiscal consolidation. The main results of our simulation exercise can be summarized as follows: a) taking into account Greece’s present debt ratio, a fiscal adjustment can lead to a contemporaneous increase in the ratio if the fiscal multiplier is higher than ca 0.5; b) despite the unprecedented improvement in the underlying fiscal position since 2010, the concomitant increase in the public debt ratio can be mainly attributed to its high initial level, a very wide initial structural deficit as well as the ensuing economic recession; c) notwithstanding its negative initial effects on domestic economic activity, the enormous fiscal effort undertaken over the last 5 years leaves the country’s debt ratio in a more sustainable path relative to a range of alternative scenarios assuming no adjustment or a more gradual implementation profile of fiscal consolidation relative to that implemented thus far. |
| Keywords: | Self-defeating consolidations, fiscal multiplier, public debt, Greece, European Commission. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:87&r=pbe |
| By: | Falato, Antonio (Board of Governors of the Federal Reserve System (U.S.)); Sim, Jae W. (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | This paper uses the staggered changes of R&D tax credits across U.S. states and over time as a quasi-natural experiment to examine the impact of innovation on corporate liquidity. By generating plausibly independent variation in firms' incentive to invest in R&D, we are able to assess the empirical importance of specific theories of the link between innovation and corporate liquidity. Firms increase (decrease) their cash to asset ratios by about one and a half percentage point when their home state increases (cuts) R&D tax credits. These baseline difference-in-differences estimates hold up to a battery of validation, falsification, and robustness checks, which corroborate their internal and external validity. The treatment effect of R&D tax credits increases monotonically with several specific proxies for debt and equity financing frictions. Increases (cuts) in tax credits also lead to increases (decreases) in the ratios of cash to bank lines of credit and to book equity, and to decreases (increases) in bank debt, secured debt, and overall net indebtness, supporting debt and equity financing channels through which innovation impacts the demand for cash. We also find support for a product market competition channel, and assess repatriation and agency explanations. Overall, our analysis offers endogeneity-free evidence that innovation is a first-order driver of corporate liquidity management decisions. |
| Keywords: | Determinants of corporate cash holdings; financial economics of innovation |
| Date: | 2014–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-72&r=pbe |
| By: | Guglielmo Barone (Bank of Italy); Sauro Mocetti (Bank of Italy) |
| Abstract: | The relationship between inequality and trust has attracted the interest of many scholars who have found a negative relationship between the two variables. However, the causal link from inequality to trust is far from being identified and the existing empirical evidence admittedly remains weak, as the omitted variable bias, reverse causation and/or measurement error might be at work. In this paper, we reconsider the country-level evidence to address this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time-invariant variables. Second, we provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, income inequality significantly and negatively affects generalised trust. However, this result only holds for developed countries. We also explore new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality – such as the Gini index and top income shares – and dynamic inequality – proxied by intergenerational income mobility. |
| Keywords: | trust, inequality, top incomes, intergenerational mobility |
| JEL: | D31 O15 Z13 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_973_14&r=pbe |
| By: | Benin, Samuel |
| Abstract: | This paper is part of four country case studies that take a detailed look at public expenditures in agriculture, and at how the data on expenditures are captured in government financial and budget accounts. The objective of these studies is to unpack the black box of public expenditure statistics reported in various cross-country datasets, and ultimately to enable the use of existing government accounts to identify levels and compositions of government agriculture expenditures, with better understanding of what these data are in fact accounting for. |
| Keywords: | public expenditure, Public investment, Agricultural development, Public policy, Maputo Declaration, public financial management, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1365&r=pbe |
| By: | António Afonso; José Alves |
| Abstract: | We study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries from 1970 until 2012. We also consider debt-to-GDP ratio interactions with monetary, public finance, institutional and macroeconomic variables. Our results show a negative impact of -0.01% for each 1% increment of public debt, although debt service has a 10 times worse effect on growth. In addition, we find average debt ratio thresholds of around 75%. Belonging to the Eurozone has a detrimental effect of at least -0.5% for real per capita GDP, and the banking crisis is the most harmful crisis for growth. |
| Keywords: | government debt, economic growth, debt thresholds. |
| JEL: | E62 H63 O47 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp162014&r=pbe |