Do dictatorships redistribute more?

This paper examines the effect of political institutions on fiscal redistribution for a country-level panel from 1960–2010. Using data on Gini coefficients before and after government intervention, we apply a measure of effective fiscal redistribution that reflects the effect of taxes and transfers on income inequality. Our findings clearly indicate that non-democratic regimes demonstrate significantly greater direct fiscal redistribution. Subsequently, we employ fiscal data in an attempt to enlighten this puzzling empirical finding. We find that dictatorial regimes rely more heavily on cash transfers that exhibit a direct impact on net inequality and consequently on the difference between market and net inequality (i.e., effective fiscal redistribution), whereas democratic regimes devote a larger amount of resources to public inputs (health and education) that may influence market inequality but not the difference between market and net inequality per se. We argue that the driving force behind the observed differences within the pattern on government spending and effective fiscal redistribution is that democratic institutions lead survival-oriented leaders to care more for the private market, and thus to follow policies that enhance the productivity of the whole economy.     

On the Cyclicality of Public Finances in Europe

Under EMU, monetary policy is oriented toward the euro area as a whole and fiscal policy is an important instrument remaining in the hands of national governments to cushion economic shocks to individual countries. The current paper analyses the cyclical pattern of public finances in Europe and addresses the question of whether fiscal policies have been geared towards this stabilising role. Although taxes fluctuate countercyclically in a conventional manner, we find that discretionary measures have tended to undermine automatic stabilisers. On the expenditure side, we find that public investment also displays a consistent procyclical pattern. Dynamic analysis reveals that a permanent shock to output induces asynchronous fluctuations in taxes and expenditures in the year of the shock and in periods thereafter. Finally, we examine political and institutional factors. The political fragmentation of the government as well as the partisan hue of the government do not interfere with the cyclical response of public finances, but we do find evidence of a pronounced electoral cycle.     

Lifetime vs Annual Tax-Transfer Incidence: How Much Less Progressive?

Annual fiscal incidence studies have found that income taxes and cash transfers are highly progressive and that their net effect is to redistribute income from rich to poor. Yet many argue Jhat such studies overstate the redistribution achieved by governments and that lifetime analysis is needed New results suggest that both income taxes and cash transfers are progressive on a lifetime basis, although they are much less progressive than annual studies suggest. The Australian tax-transfer system thus generates some lifetime redistribution from rich to poor, while also enforcing intra-personal redistribution across the life cycle of individuals.     

Public education and redistribution when talents are mismatched

In democratic countries, elected policymakers determine public spending. The level of public spending depends on taxes that are decided by a voting mechanism. Policymakers also decide how to allocate funds among different policies, such as public education and pure redistributive transfers. How are the levels of funding for public education and redistribution determined in the political process? What impacts do votes on these two policies have on inequality, growth and social mobility? We develop a politico-economic model that highlights a novel mechanism: public education provides opportunities for the children of the poor to be recognized for their talent. This reduces the probability of a mismatch, which takes place when individuals with low talent who come from rich families find jobs that should go to people with high talent (and vice versa). Hence, the poor may prefer public spending on education to direct redistribution, while the rich prefer redistribution, as education implies more competition for good jobs from the poor.     

影响收入分配关系的五个问题与八点建议

基于与收入分配密切相关的五个重要问题的分析,文章认为,我国现阶段收入分配的症结不在于雇员薪酬比重、政府收入规模(宏观税负)、国有经济比重等带有总量特征的指标出现了什么严重问题,而在于收入分配的结构存在较为显著的不合理,差距扩大,公正性不足,转移支付和直接税的再分配优化机制构建不到位、作用发挥不够,以及对财产性收入的影响缺乏有效的引导与约束,国有企业的资产收益对公共福利贡献较弱,等等。文章从政府与财政的职能定位出发,考虑全局的可持续发展和社会和谐,提出了八点完善收入分配关系的建议。     

Municipal Finance in Poland,the Slovak Republic,the Czech Republic and Hungary: Institutional Framework and Recent Development

The recent process of political and economic transition in eastern European countries has not only contributed to the decentralisation of political structure but also significantly enhanced the fiscal autonomy of municipalities in these countries. In this context many similar types of public activities have recently been assigned to local governments, and some taxes were also declared to be local taxes. To be sure, this type of fiscal decentralisation has caused some additional problems, particularly for safeguarding the quality of publicly provided goods and services and for co-ordinating intergovernmental fiscal transfers between the central and local governments. For instance, some criticise that many small-sized municipalities in the transition economies have suffered from financial bottlenecks and have not been able to receive sufficient financial support from the central government. However, such a fiscal devolution trend appears to continue. This study primarily deals with issues surrounding the impact of national fiscal policy and the regulatory framework on local governments' expenditure behaviour and their ability to mobilise necessary revenues under the particular consideration of the institutional and administrative co-operation with the central government and of the less well-developed financial market in Poland, the Slovak Republic, the Czech Republic and Hungary.     

Public Preferences for Government Spending Priorities: Survey Evidence from Germany

Employing data from a representative survey conducted in Germany, this paper examines public preferences for the size and composition of government expenditure. We focus on public attitudes towards taxes, public debt incurrence and public spending in six different policy areas. Our findings suggest, first, that individual preferences for the use of additional tax money can be categorised as either capital‐oriented expenditure or public debt reduction. Second, we find that fiscal preferences differ along various dimensions. Specifically, personal economic well‐being, economic literacy, confidence in politicians, political ideology and time preference are significantly related to individual attitudes towards public spending, taxes and debt. The magnitude of the effects is particularly large for time preference, economic knowledge and party preference. Third, public preferences for public spending priorities are only marginally affected when considering a public budget constraint.     

Minimum wage or negative income tax: why skilled workers may favor wage rigidities

In this article, we analyze the political choice of the extent and means of income redistribution between high and low-skilled workers. Redistributive tools encompass both fiscal transfers (a negative income tax) and a minimum wage requirement. We assume the use of fiscal instruments alone to be the first-best means of redistribution. We show that high-skilled workers may favor a second-best, minimum wage requirement because it increases unemployment, hence raising the marginal cost of redistribution, and creates a justification for them to moderate low-skilled workers’ claim for redistribution.      

FISCAL DECENTRALIZATION AND THE BUSINESS CYCLE: AN EMPIRICAL STUDY OF SEVEN FEDERATIONS

Although fiscal policies of central governments sometimes provide modest insurance against regional income shocks, this paper shows that procyclical fiscal policy among provincial governments can easily overwhelm these stabilizing effects. We examine the cyclicality of budget items among provincial governments in seven federations, showing that own-source taxes are generally highly procyclical, and contrary to common wisdom, revenue sharing and discretionary transfers are either acyclical or procyclical. Constituent governments are thus left alone to smooth their own shocks, and we document the extent to which various restraints on borrowing and saving undermine their ability to do so. The resulting procyclicality of provincial fiscal policy is likely to have important implications in a world where demands for countercyclical fiscal policy are increasing but considerable fiscal responsibilities are being devolved to subnational governments.     

Fiscal Effects of Minimum Wages: An Analysis for Germany

Abstract. Against the background of the current discussion of statutory minimum wages in Germany, this paper analyzes the potential employment and fiscal effects of such a policy. Based on estimated labor demand elasticities obtained from a structural labor demand model, the empirical results imply that minimum wages in Germany will be associated with significant employment losses among marginal and low- and semi-skilled full-time workers. Even though minimum wages will lead to increased public revenues from income taxes and social security benefits, they will result in a significant fiscal burden, due to increased unemployment benefits and decreased revenues from corporate taxes.     

The Great Recession,Austerity and Inequality: Lessons from Ireland

The advent of the Great Recession and the widespread adoption of fiscal austerity policies have heightened concern about inequality and its effects. We examine how the distribution of income in Ireland—a country which experienced one of the most severe economic contractions—has evolved over the years 2008 to 2013. Standard cross‐sectional analysis of the income distribution shows broad stability in the Gini coefficient and in decile shares, with one main exception: the share of the bottom decile fell sharply, with the largest fall in average incomes being for that group. Longitudinal analysis shows that the falls in the average income for the bottom decile were not due to decreasing income for those remaining in the bottom decile, but to falls in income from those initially located in higher deciles. The extent of redistribution through taxes and transfers increased strongly, as measured by the Reynolds‐Smolensky index, which rose from 0.20 before the onset of the crisis to 0.27 in 2013. Analysis indicates that about three‐quarters of this increased redistribution is due to automatic stabilisers and one‐quarter to discretionary policy changes.     

Preferences for redistribution and exposure to tax-benefit schemes in Europe

This paper provides evidence that attitudes towards redistribution are associated with the extent of generosity of the redistributive context experienced by the individual, as measured by the likelihood of receiving positive benefit transfers net of fiscal contribution. We estimate reduced form tax-benefit equations with the EU Statistics on Income and Living Conditions (EU-SILC), and match the implied parameters to the respondents of the European Social Survey (ESS) on the basis of their characteristics. The period of analysis is 2008–2016. For identification, we exploit exogenous cross-country and time variation in tax rules and market income to disentangle implications of exposure to tax-benefit rules on preferences for redistribution from the effects of changes in income inequality. We find that exposure to positive net benefits increases support for redistribution by 1.4%–3% on baseline models, the effect being robust across a variety of specifications.     

Welfare Effects of Different Public Expenditures and Taxes in the Netherlands

This paper explores the welfare effects of public consumption, income transfers and public investment financed through different types of taxes. One surprising result is that, contrary to public consumption goods, public capital goods do not necessarily become less attractive if distortionary taxes, rather than lump-sum taxes, are necessary to finance them. The numerical simulations reveal that the net welfare effects of public investments in the Netherlands are typically positive if financed through lump-sum taxes or distortionary taxes on labor. However, if a source-based capital tax is adopted to finance public investments, the overall welfare effect may be negative.     

Does fiscal redistribution discourage local public investment?

This paper studies the determinants of regional (oblast‐level) public investment in transitional Russia, focusing on the effects of federal fiscal redistribution. A model of local government expenditure in the presence of regional asymmetries shows that revenue redistribution from wealthy to poor regions discourages local public investment. Random‐ and fixed‐effects estimation of regional panel data for 1994–97 supports the existence of a disincentive effect from fiscal redistribution on regional public investment, which varies according to a region's federal status and wealth: non‐republics have a lower propensity to invest out of transfers than out of own income, as do regions with above‐median per capita income. Republics reduce public investment more than current spending in response to higher federal taxation. Russia's ‘asymmetrical federalism’ thus creates different fiscal incentives for different types of regions.     

Redistribution,inequality, and efficiency with credit constraints: Implications for South Africa

We develop a model that jointly determines the distribution of income and the aggregate macrodynamics. We identify multiple channels through which alternative public policies such as transfers, consumption and income taxes, and public investment will affect the inequality-efficiency trade-off. Income tax and transfers have both a direct income and an indirect substitution effect; a consumption tax has only the latter. We present extensive numerical simulations motivated by the South African National Development Plan 2030, the objective of which is to reduce soaring inequality and increase per capita GDP. Our results illustrate how the judicious combination of social grants and a consumption tax may help achieve these targets. The simulations also suggest that the sharp decline in the private-public capital ratio, coupled with a high degree of complementarity between public and private capital may help explain the persistence of market inequality in South Africa during the last two decades.     

Why has Europe Become Environmentally Cleaner? Decomposing the Roles of Fiscal,Trade and Environmental Policies

This paper examines the role of fiscal policy, trade and energy taxes on environmental quality in Europe using disaggregated data at the monitoring station level for the 12 richest European countries spanning the period from 1995 to 2008. Our estimations show that fiscal policies and energy taxes are important determinants of pollution through various mechanisms. We find that increasing the share of fiscal spending in GDP and shifting the emphasis towards spending in public goods and against non-social subsidies significantly lower the concentrations of sulfur dioxide and ozone but not nitrogen dioxide. At the same time, energy taxes reduce nitrogen dioxide concentrations but have no effect on ozone and sulfur dioxide. Finally trade openness has a direct effect on sulfur dioxide but no effect on nitrogen dioxide or ozone. Our estimates account for time-varying unobserved heterogeneity.     

Impact of Taxes and Benefits on Inequality among Groups of Income Units

This paper analyzes the redistributive impact of the fiscal system and simultaneously explains how each tax and benefit instrument satisfies the principles of vertical and horizontal equity within and across different groups of income units. The decompositions of the redistributive effect are based on new axioms concerning the vertical and horizontal equity of the overall fiscal system, including taxes and benefits. The method is based on pairwise comparisons of income units and the “micro” concepts of income supremacy change, deprivation from reranking, and income distance change. The decomposition results provide more detailed insights into the income redistribution process than is typical in the literature. This is illustrated by an empirical application of the method to the Croatian scheme of personal income taxes and non‐pension social benefits, in which households are divided into two groups, those with and those without children.     

Distributional Effects of Fiscal Consolidation

If public goods and transfers are relatively more valuable to the poor, the elderly poor stand to lose from public debt reduction achieved through spending cuts. When long–term surpluses produced by debt reduction are recycled into higher provision of public goods and transfers, future generations of poor could gain. If future surpluses are recycled through lower labour taxes, working households in the future would be positively affected. The impact of debt reduction on vertical equity is ambiguous, yet inter– rather than intragenerational equity is likely to pose the greatest obstacle to fiscal consolidation. Based on majority voting by self–interested households, debt reduction is unlikely to occur.
JEL classification : D 91; E 62; H 23; H 63     

Stabilization mechanisms in a monetary union

The stability of a monetary union entails the establishment of mechanisms that allow the member countries to smooth their paths of consumption after negative shocks in their income. A centralized fiscal institution could help countries through a mechanism of taxes and transfers. In this paper we study the stabilizing effects of different mechanisms of compensation in a two-country general equilibrium model subject to asymmetric technology shocks. In particular, we have focused on an optimal system of taxes and transfers as opposed to a discretionary transfer mechanism, finding that the optimal transfer consists in an intertemporal distribution to the economy that experiences the negative shock instead of a current high transfer as in the non-optimal mechanism. Lastly, we have assessed the degree of stabilization related to the mechanisms in question, showing that the optimal mechanism can match the degree of stabilization the empirical literature attributes to the case of the United States.     

EFFECTS OF TAXES AND BENEFITS ON INCOME DISTRIBUTION IN KOREA

This paper examines the redistributive effects of Korea's fiscal policies, including consumption taxes and in‐kind benefits. Using the Household Income and Expenditure Survey of 2007, we find that taxes and transfers reduce income inequality in Korea by 13.8 percent. Contrary to the popular belief that direct taxes are the key tool for redistribution, in‐kind benefits, direct taxes, and social security contributions all decrease the Gini coefficient by 6.7, 4.7, and 2.9 percentage points, respectively. The redistributive effect of consumption taxes is small and negative (?0.5 percentage point). Policy simulations indicate that education spending financed by the personal income tax has a positive redistributive effect and that the lower 70 percent of households enjoy positive net benefits. Spending targeting the poor has a strong redistributive effect, which implies low popularity because the majority of households face net losses.