Welfare-Improving Carbon Dioxide Tax Reform Taking Externality and Location into Account

Using Swedish household data from 1992, I analyze whether households disproportionately burdened by an increased carbon dioxide tax can be compensated by changes in other commodity taxes. This is done by searching for Dalton–improving tax reforms (DI-reforms), a method for welfare analysis which requires only ranking of households rather than cardinal comparisons. This application of the method has two features not found in earlier applications. First, the direct value of reduced carbon dioxide emissions is incorporated in the analysis. Second, the method is extended to allow identification of three-dimensional tax reforms, to be able to rank households along three dimensions. It is found that i) incorporating the value of reduced emissions does not unambiguously expand the set of DI-reforms, and ii) DI-reforms exist only when households are ranked in line with expenditures and size. When households' access to public transportation is also considered no DI-reforms are found.     

Redistributive impact of indirect tax reforms: Greece, 1988–2002

This paper assesses the distributional impact of indirect taxes among Greek households between 1988 and 2002, a period that coincides with the introduction of significant reforms in the tax system due to EU membership. The highly differentiated indirect tax structure prevailing at the beginning of the period had distributional benefits over the more simplified 2002 tax structure. The overall inequality of the after‐tax welfare distribution has increased by 6–12½ per cent and changes in the indirect tax system seem to explain about half of this increase. The paper also applies a recent method of measuring the distributional impact of relative price changes caused by changes in tax rates of commodities (Newbery, 1995) and establishes that indirect tax reforms introduced since 1988 had an adverse impact on the distribution of purchasing power, which nevertheless seems to be very small.     

Analysing Tax–Benefit Reforms Using Non‐Parametric Methods*

Static tax–benefit microsimulation models (MSMs) are widely used and well‐regarded tools for public policy analysis, but it is essential to use them very carefully. This paper focuses on the analysis of MSM output, suggesting the use of non‐parametric methods as a useful, informative and relatively straightforward complement to detect effects not always captured by measures often used to present MSM results. Non‐parametric methods are used here to analyse the output of an MSM applied to the 1998 Italian personal income tax reform, the main change in which concerned the tax schedule: the first tax rate was increased from 10 per cent to 18.5 per cent and the top one was reduced by 4.5 percentage points. Non‐parametric methods highlight that the effects of this reform were very different for different types of households, with low‐income pensioner households among the main losers. Results are checked for robustness by standard statistical methods and compared with empirical results obtainable using quintile histograms.     

What measure of inflation should a developing country central bank target?

In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.     

Social Capital and Housing Affordability: Evidence from China

This article attempts to examine the problem of housing affordability in China based on a set of household-level survey data. In contrast to the previous studies, our study focuses on the important implication of social capital for households’ house-purchasing decisions in this country. Our results show that household expenditures on the relations with parents and other relatives are important determinants for homeownership in China. We also find evidence that house-purchasing decisions are significantly affected by relatives-related variables such as number of immediate relatives in the same city, distance from parents, educational years of family head’s father, and whether parents are alive. Our research helps shed new light on the high homeownership rates in urban China.     

The Distributional Implications of Income Under‐Reporting in Hungary*

The ability and inclination of specific social groups to evade tax vary widely, and this leads to considerable variation in the actual tax burden on individuals with similar levels of income. Thus, ignoring tax evasion can be seriously misleading in terms of the distributive and fiscal effects of the tax system. This paper estimates the distributional implications of income tax evasion in Hungary, based on a random sample of the administrative tax records of nearly 230,000 individuals. Gross incomes declared in the administrative tax returns are compared with incomes stated in a nationally representative household budget survey. Our estimates show that the average rate of underreporting is 9–13 per cent, though this conceals a big difference between the self‐employed (who hide the greater part of their income) and employees. The estimates are likely to be lower bounds. These rates are used in a tax– benefit microsimulation model to calculate the fiscal and distributional implications of under‐reporting. Tax evasion reduces households' personal income tax payments by about 16–20 per cent. While the poverty rate increases only slightly, income inequality rises significantly, suggesting that high‐income households tend to evade tax proportionately more. Finally, we find that tax evasion largely reduces the progressivity of the tax system.     

The Effect of the Recent Inheritance Tax Reform on Bequest Behaviour in Japan

This paper examines the behavioural response of households to wealth transfer taxation using household survey data from Japan, with particular attention being paid to the implications of different bequest motives that households may have. The data reveal that relatively few households plan to reallocate the newly taxable amount of wealth to their own consumption or inter vivos transfers in response to the recent lowering of the basic deduction of the inheritance tax. Our analysis shows that this partly reflects the fact that a relatively large share of households have no or a weak bequest motive in Japan. However, our estimation results also suggest that parents with an altruistic bequest motive are more likely to avoid an increase in their children's tax bill by reallocating the newly taxable amount of wealth to inter vivos transfers than those with no or a weak bequest motive. By contrast, parents with an exchange bequest motive are more likely to respond to the tax reform by reallocating the newly taxable amount of wealth to their own consumption, though they seem to exhibit a similar response to those with an altruistic bequest motive in some cases.     

The curious case of Canadian corporate emissions valuation

This study examines the relevance to investors of the greenhouse gas (GHG) emissions of publicly-traded Canadian firms over 2006–2018. Based on two independent datasets, we document that firm value varies positively in the level of emissions. This result suggests that the Canadian setting differs from those studied previously, notably because of low climate litigation risk and national and subnational expenditure policies to offset climate impacts on the economy. While national and subnational expenditures to mitigate emissions affect firms' on-balance-sheet costs and profits, investors price the future payoffs to these expenditures into firm value. Supporting this view, we find that the positive relation between emissions and firm value in Canada is amplified for high GHG-intensity firms (mainly energy firms in Alberta), whose future payoffs to environmental policies and spending exceed those of low GHG-intensity firms. Our results are consistent with investors’ recognition of the benefits to firm value of national and subnational policies to decarbonize the Canadian economy.     

Does Germany Collect Revenue from Taxing the Normal Return to Capital?*

A widespread objection to the introduction of consumption tax systems claims that this would lead to high tax revenue losses. This paper investigates the revenue effects of a consumption tax reform in Germany. Our results suggest that the revenue losses would be surprisingly low. We find a maximum revenue loss of 1.6 per cent of annual GDP. In some years, we even find tax revenue gains. This implies that the current tax system collects little revenue from taxing the normal return to capital. Based on these results, we calculate a macroeconomic measure of the effective tax rate on capital income.     

Demographic Change and Pension Reform in Spain: An Assessment in a Two‐Earner,OLG Model*

Recent pension reforms in Spain have been guided by two opposite goals: achieving financial stability and improving redistributive aspirations. In particular, reforms implemented in 1997/2001 entailed a mixture of both through: (i) changes in the pension formula; (ii) the extension of entitlement to early retirement to all cohorts; and (iii) increases in survival pensions. This paper builds an applied general equilibrium OLG model that captures the fundamental non‐stationarity of the Spanish reality (ageing population, education transition and increasing female attachment to the labour market) to assess the impact of those reforms. As a novel feature with respect to the literature, households in our model economy are made up of two potential earners who make saving and labour supply decisions. Our main conclusions from the analysis are at three different levels. First, the Spanish pension system is clearly unsustainable, with pension expenditure reaching a figure of about 18 per cent of GDP in 2050, and the reforms have clearly been     

Cost of government and firm value

Do high expenditures incurred in running the government benefit or hurt firms? Using Chinese data between 1999 and 2006, we find that higher administrative expenditures in provincial governments are associated with lower firm value, lower stock and financial performance, and lower labor productivity. Local governments that spend more on public administration tend to collect more fees from companies and spend less on social welfare and infrastructures. Our evidence is consistent with the “grabbing hand” hypothesis and has important policy implications.     

Food prices,tax reforms and consumer Welfare in Tanzania 1991–2007

This paper analyses the effect of observed food price changes on household consumption (welfare) in Tanzania and from this simulates the welfare effect attributable to tax (tariffs and VAT) reforms. The three rounds of the Tanzania Household Budget Survey (1991/92, 2000/01 and 2007) are used to apply Deaton’s method based on median unit values (prices) and household budget shares. The results indicate that real price increases over 1991–2007 have reduced welfare of the average household by 20 per cent of 1991 income, and the loss was fairly evenly distributed between the 1990s and 2000s. The welfare loss was much greater for the poor, especially the rural poor (a 27 per cent reduction), compared to the non-poor (in particular the urban non-poor, who suffered a five per cent loss). Although we cannot establish explicit links between tax reforms and domestic commodity price changes, to assess the extent to which welfare changes can be explained by tax reforms we simulate the effects of tax changes on domestic price changes. The simulation shows that tax reforms (tariff reductions) offset the welfare losses for all household groups, especially in the 1990s; although the differences were small, the urban poor benefit more in relative terms from tax reforms whereas the rural poor benefit least (the effect on the non-poor was similar irrespective of location).     

Expenditure Incidence in Africa: Microeconomic Evidence

In this paper, we examine the progressivity of social sector expenditures in eight sub‐Saharan African countries. We employ dominance tests, complemented by extended Gini/concentration coefficients, to determine whether health and education expenditures redistribute resources to the poor. We find that social services are poorly targeted. Among the services examined, primary education tends to be most progressive and university education is least progressive. The benefits associated with hospital care are also less progressive than other health facilities. Our results also show that, while concentration curves are a useful way to summarise information on the distributional benefits of government expenditures, statistical testing of differences in curves is important.     

农村居民养老保险财政补贴与农民家庭消费异质性——基于CHARLS数据的研究

基于2011年和2013年两期CHARLS数据构建面板数据模型，分析农村居民养老保险制度中央财政“一刀切”的基础养老金补贴政策与地方财政差异化的缴费补贴政策对农民家庭消费的异质性影响。结果显示：财政补贴有利于整体促进参保农民家庭消费支出，尤其对已领取养老金的家庭，消费增进效应更明显；对于未领取养老金的参保农民家庭，却具有抑制效应。从不同收入阶层和不同地区来看，农村居民养老保险财政补贴对低、中、高收入阶层农民家庭消费的影响依次减弱，对东部、西部、中部地区农民家庭消费的影响依次增强。因此，加大财政补贴力度、优化补贴方式、扩展筹资渠道、强化制度联动能更好地发挥财政补贴改善社会福利的作用。     

The Many Dimensions of Child Poverty: Evidence from the UK Millennium Cohort Study*

In this paper, we use a multidimensional framework to characterise child poverty in the UK. We examine the interdependencies amongst the different dimensions of multidimensional poverty and the relationship between multidimensional poverty and income poverty. We also explore the links between multidimensional poverty, income poverty and children's cognitive and non‐cognitive development. Our findings suggest that multidimensional poverty identifies many but not all of the same children classified using standard income poverty measures. Approximately 20 per cent of children are classified as poor on one measure but not the other. Children in workless households and ethnic minority children face the highest odds of growing up in both multidimensional poverty and income poverty. We find similar levels of persistence in multidimensional poverty and income poverty, with 17 per cent (18 per cent) of children experiencing persistent multidimensional (income) poverty and 10 per cent of children experiencing both persistent multidimensional poverty and persistent income poverty. Multidimensional poverty (both episodic and persistent) also has a detrimental impact on children's development over and above the negative impact of income poverty.     

Optimal Environmental Taxation with Capital Mobility*

Climate policy exemptions for energy‐intensive sectors are often justified with distributional concerns. One concern is that households employed in energy‐intensive sectors might be affected disproportionally because of (international) capital mobility. By assuming that workers cannot move freely between sectors, we can reproduce this concern: uniform climate policy causes more inequality between the sectors when capital is mobile than when it is not. However, we find that affected households can be relieved more effectively with sector‐specific labour taxes than with sector‐specific climate policy. The reason for this finding is that households benefit more directly from sector‐specific labour tax cuts than from climate policy exemptions. Keeping climate policy uniform across sectors has the added benefit of creating incentives for long‐term decarbonisation. In addition, we find that the differential effect of capital mobility depends on the government's degree of inequality aversion – redistribution is more expensive when capital is mobile.     

Population Ageing,Fiscal Pressure and Tax Smoothing: A CGE Application to Australia*

This paper analyses the fiscal pressure from population ageing using an intertemporal CGE model, applied to Australia, and compares the results with those of a recent government‐commissioned study. The latter study uses an alternative modelling approach based on extrapolation rather than optimising behaviour of consumers and firms. The deadweight losses from the fiscal pressure caused by population ageing are equivalent to an annual loss of consumption of $260 per person per year in 2003 dollars in the balanced‐budget scenario. A feasible degree of tax smoothing would reduce this welfare loss by an equivalent of $70 per person per year. Unlike the extrapolation‐based model, the CGE approach takes account of feedback effects of ageing‐induced tax increases on consumption and labour supply, which in turn impact on the ultimate magnitude of fiscal pressure and therefore tax increases. However, a counterfactual simulation suggests that the difference in terms of deadweight losses between the two modelling approaches is modest, at about $30 per person per year.     

Testing for a Debt‐Threshold Effect on Output Growth

Using the Reinhart–Rogoff dataset, we find a debt threshold not around 90 per cent but around 30 per cent, above which the median real gross domestic product (GDP) growth falls abruptly. Our work is the first to formally test for threshold effects in the relationship between public debt and median real GDP growth. The null hypothesis of no threshold effect is rejected at the 5 per cent significance level for most cases. While we find no evidence of a threshold around 90 per cent, our findings from the post‐war sample suggest that the debt threshold for economic growth may exist around a relatively small debt‐to‐GDP ratio of 30 per cent. Furthermore, countries with debt‐to‐GDP ratios above 30 per cent have GDP growth that is 1 percentage point lower at the median.     

Differences in Hours Worked in the OECD: Institutions or Fiscal Policies?

We study the determinants of the level and the evolution of per capita hours worked in a panel of OECD countries since the 1970s. Following Pesaran (2006) , our empirical strategy allows for the possibility of cross‐sectionally correlated error terms due to unobserved common factors, which are potentially nonstationary. We find that much of the variation in per capita hours worked across countries and over time can be explained by differences in the level and structure of taxes and government expenditures. Differences in (the evolution of) labor and product market institutions have much less of a role to play. Our results show that a careful treatment of the time‐series properties of the data is crucial.     

The Anticipated Capitalisation Effect of a New Metro Line on Housing Prices*

Housing units with closer access to public transportation enjoy a higher market value than those with similar characteristics but poorer access. This difference can be explained by the lower cost of transport to the main workplaces and shopping areas in town. For this reason, investments in public transport infrastructure, such as building a new metro line, are capitalised totally or partially into land and housing prices. This work empirically analyses the degree of capitalisation into housing prices of the benefits of the new Line 4 of the Santiago metro system, which began operating in December 2005. We focus on anticipated capitalisation into housing prices at the moment construction of Line 4 was announced and at the moment information on the basic engineering project was unveiled, identifying the location of the future stations. We use a unique database containing all home buying and selling transactions in the Greater Santiago area between December 2000 and March 2004. The results show that the average apartment price rose by between 4.2 per cent and 7.9 per cent after construction was announced and by between 3.1 per cent and 5.5 per cent after the location of the stations was identified. These increases were not distributed evenly, but depended on the distance from the apartment to the nearest station. An indirect effect of this kind of capitalization is that property tax collections will increase if property is reappraised following the price rise. This effect is not negligible in magnitude and could represent 11 to 17 per cent of investment in the new metro line. This raises and interesting discussion on how the metro network extension is financed.