On 1st November 2015, the Belgian government increased the excise tax on alcoholic beverages. For spirits with 40% of alcohol and bottle size of 70 cl, this tax change is equivalent to an amount of ...2,43 € per bottle of spirits. This paper studies the impact of this tax reform at the store level on the (posted) retail price of six major brands of spirits, using a difference-in-differences method. The estimation is based on a balanced panel of scanner data from a major supermarket chain (with a 33% market share) and uses the retail prices of the same brands sold in France by the same supermarket chain as a control group. Having information on each store location, we show spatial variations in the tax pass-through for homogeneous products. We find that these variations are strongly related to the intensity of local competition and to a lesser extent to the proximity to the borders (mainly with Luxembourg which is the low-price country). We find that the tax was quickly passed through during the first month of tax implementation and that it was mostly over-shifted. However, we also find that both the border and the competition effects are not instantaneous, but arise several months after the tax reform. These findings have important implications for alcohol control policies as they highlight that the incidence of alcohol taxation can vary greatly across space and affect differently households depending on where they live.
Policymakers seeking to raise more tax revenues from multinational enterprises have two alternatives: to raise tax rates or to devote more resources to improve tax compliance. Tougher tax enforcement ...increases the cost of profit shifting, and thus mitigates tax competition. We present a tax‐competition model with two policy instruments (the corporate tax rate and the tightness of tax enforcement). In line with the Organisation for Economic Cooperation and Development's Base Erosion and Profit Shifting project, we analyze the scope for enforcement cooperation among asymmetric countries, considering that taxes are set noncooperatively. We show that the low‐tax country may fail to cooperate if asymmetry is large enough and that tax havens would never agree to cooperate. Then we identify two drivers for enforcement cooperation. The first driver of cooperation is the complementarity of enforcement actions across countries. This is because the efficiency loss from enforcement dispersion is greater under complementarity. The second driver of cooperation is tax leadership by the high‐tax country, which acts as a level‐playing field in the tax competition and reduces the extent of disagreement on enforcement.
The paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of ...capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes Boadway, R., Flatters, F., 1982. Efficiency and equalization payments in a federal system of government: a synthesis and extension of recent results, Canadian Journal of Economics 15, 613–633; Weingast, B.R., 2006. Second Generation Fiscal Federalism: Implication for Decentralized Democratic Governance and Economic Development, Working Paper, Hoover Institution, Stanford University. We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region.
This paper provides a systematic analysis of fiscal decentralization on the quality of government by studying jointly its effects on electoral discipline and selection, in a setting where, ...realistically, voters only have limited information about fiscal policy in other jurisdictions, ruling out yardstick competition. Fiscal centralization reduces the
extent of electoral discipline, as a corrupt (rent-seeking) incumbent can target good behavior only at a “minimum winning coalition” of regions (selective rent-diversion) in order to retain office, but thus makes it more profitable for bad incumbents to pool with good ones, thus increasing the
probability of electoral discipline occurring at all. Voters tend to prefer centralization when politicians are low quality i.e. more likely to be corruptible. Centralization with uniform taxes can dominate both unconstrained centralization and decentralization, explaining why uniform taxes are so widely observed.
Abstract
We analyse the impact of unequal school opportunity on intergenerational income mobility and human capital accumulation. Building upon the classical Becker–Tomes–Solon framework, we use a ...regime-switch model allowing for differences in income transmission across groups. We find that unequal school opportunity raises average human capital because of assortative matching. However, because income dispersion tends to be higher at the top, in most cases unequal school opportunity decreases intergenerational mobility. Calibrating the model to the USA, simulations suggest that school equalisation and desegregation policies have positive effects on mobility at relatively small efficiency costs.
•We study a temporary VAT reform in Belgium, which decreased the VAT rate from 21% to 6% in April 2014, followed by a VAT reinstatement at 21% in September 2015.•We estimate the VAT pass-through by a ...difference-in-differences approach that uses business electricity prices (not subject to VAT) as a control group.•The VAT pass-through to residential prices is complete both for the VAT cut and the successive VAT hike.•Studying the impact of the VAT reform on demand, we find a demand elasticity between −0.09 and −0.17, with a symmetric response to the VAT cut and the VAT hike.•Consumers reacted quickly to the VAT reform, raising questions about the salience of the VAT change and tax incidence.
In April 2014, the Belgian government reduced the VAT rate on the electricity price from 21% to 6% to support low-income families. In September 2015, the tax cut was repealed, and the VAT rate was reinstated to 21% in the context of a change of government. This paper investigates the impact of such temporary and (plausibly) exogenous VAT reform on the Belgian electricity market. We study the pass-through of the VAT reform to electricity prices and the effect of this (exogenous) price change on electricity demand. We estimate the VAT pass-through on residential electricity prices by a difference-in-differences method, using business electricity prices (not subject to VAT) as a control group. Our findings reveal that both the tax cut and the tax hike were entirely shifted to the electricity price (100% pass-through). To assess the impact of the VAT change on demand, we perform a counterfactual demand analysis of the electricity flowing monthly over the grid at the network operator level. Exploiting VAT and non-VAT related price variations, our results show a price elasticity of residential demand for electricity between -0.09 and -0.17. Interestingly, we also find that demand reacted quickly and symmetrically to the VAT cut and the subsequent VAT hike.
Balancing the government budget in an aging economy may require adjusting gradually pension benefits. Such policy change can take two forms: adjusting the accrual rate (the rate at which individuals ...built-up pension entitlements while working) or the indexation rate (the rate a which accrued entitlements are linked to nominal wage growth). We compare the consequences of such gradual policies across cohorts. We identify a fundamental generational trade-off between democracy and equality. In particular, we show that for Belgium, 80% of the population alive at the time of the reform prefers the accrual to the indexation reform, with the implication that the youngest half of the population would bear 85% of the total adjustment cost. The indexation reform provides more generational equality because the phasing in over time has larger base and thus benefit cut can be smaller per capita. We then consider other reforms improving the generational equality, showing that all those reforms fail to gain majority support. Finally, considering labor incentives, we show that the indexation reform is also more efficient than the accrual reform. Efficiency meets generational equality.
•There is a “generational tradeoff” between democracy and equality with pension reforms.•The indexation reform is better to minimize generational inequality, but the accrual reform is politically preferred.•The key driver is the different phase in of those (gradual) pension reforms.•Work incentives reinforce the result: efficiency meets equality.
In normative public economics, intergovernmental competition is usually viewed as harmful. Although empirical support for this position does not abound, market integration has intensified competition ...among developed countries. In this paper we argue that when assessing welfare effects of intergovernmental competition for various forms of political failures (the public choice critique), the outcome is ambiguous and competition can be welfare improving.
This paper reexamines the work of Kempf and Rota-Graziosi (J. Pub. Econ. 94: 768-776, 2010), which shows that leadership by the small region is the risk dominant equilibrium under the endogenous ...timing game. They obtained this result in a model where the asymmetry among regions translates into different gradients of the demand for capital but identical vertical intercepts. In this paper, we simply reverse the form of asymmetry by considering different vertical intercepts but identical gradients. The reason is that market power is typically related to the intercept and not to the slope of the demand function. We then show that leadership by the large region becomes the risk dominant equilibrium and can even become Pareto superior.
•This paper reexamines the equilibrium leadership in tax competition models.•Previous researches showed that the small region's leadership is risk dominant.•We study the case where regions differ in vertical intercepts of the capital demand.•We show risk dominance and Pareto dominance of the large region's leadership.
Public economics studies how government taxing and spending activities affect the economy--economic efficiency and the distribution of income and wealth. This comprehensive text in public economics ...covers the core topics market failure and taxation as well as recent developments in the political economy and public choice literatures. It is unique not only in its broad scope but in its balance between public finance and public choice and its combination of theory and relevant empirical evidence. After introducing the theory and methodology of public economics and reviewing the efficiency of the competitive equilibrium, the book presents a historical and theoretical overview of the public sector. It then discusses departures from efficiency, including imperfect competition and asymmetric information; issues in political economy, including rent-seeking (a topic often omitted from other texts); equity; taxation issues, including tax evasion and its consequences; fiscal federalism and tax competition among independent jurisdictions; and the intertemporal issues of social security and economic growth. This text introduces the reader to the theory of public economics and the most significant results of the analysis, providing an overview of the current state of the field. It is accessible to anyone with a background of intermediate microeconomics and macroeconomics and can be used in advanced undergraduate as well as graduate courses. Although the mathematics has been kept to a minimum, the book remains analytical rather than discursive. Annotated suggestions for further reading and numerous exercises are included at the end of each chapter.
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