Pub Date : 2022-11-01DOI: 10.1177/10911421221129309
Fernanda Alfaro, Dusan Paredes, M. Skidmore
This article evaluates the impacts of reductions in residential effective tax rates on homeownership in Detroit, Michigan. The decline in effective tax rates was driven by a citywide reassessment that significantly reduced effective tax rates. These estimates are used to infer the potential impacts of moving from a traditional property tax to a split-rate tax in which the tax rate applied to land is higher than the tax rate applied to structures. Using Detroit parcel-level data over the years 2012–2019, we find that tax reductions resulting from property reassessment generated a very small net decrease in homeownership. Our evaluation suggests that moving to a split rate tax would likely result in a minimal change in the homeownership rate in Detroit.
{"title":"The Effect of Property Assessment Reductions on Homeownership: A Quasi-Dynamic Economic Analysis","authors":"Fernanda Alfaro, Dusan Paredes, M. Skidmore","doi":"10.1177/10911421221129309","DOIUrl":"https://doi.org/10.1177/10911421221129309","url":null,"abstract":"This article evaluates the impacts of reductions in residential effective tax rates on homeownership in Detroit, Michigan. The decline in effective tax rates was driven by a citywide reassessment that significantly reduced effective tax rates. These estimates are used to infer the potential impacts of moving from a traditional property tax to a split-rate tax in which the tax rate applied to land is higher than the tax rate applied to structures. Using Detroit parcel-level data over the years 2012–2019, we find that tax reductions resulting from property reassessment generated a very small net decrease in homeownership. Our evaluation suggests that moving to a split rate tax would likely result in a minimal change in the homeownership rate in Detroit.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"50 1","pages":"704 - 731"},"PeriodicalIF":0.7,"publicationDate":"2022-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43820532","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-11-01DOI: 10.1177/10911421221134834
John E. Anderson
The articles in this volume were originally commissioned as part of a major study of split-rate taxation in Detroit. That study was published by the Lincoln Institute of Land Policy in 2022 as, “ Split-Rate Property Taxation in Detroit: Findings and Recommendations. ” To inform the research under-taken for that study, and to provide key inputs for the simulation modeling of a split-rate tax system for the City of Detroit, three technical papers were written by leading experts in public fi nance. Those papers have been sub-jected to revision and peer review for this volume. Each paper makes impor-tant contributions to our understanding of the ways that split-rate taxation can bene fi t local governments in legacy cities as they seek to promote eco-nomic growth.
{"title":"Introduction to Special Issue: Split-Rate Taxation","authors":"John E. Anderson","doi":"10.1177/10911421221134834","DOIUrl":"https://doi.org/10.1177/10911421221134834","url":null,"abstract":"The articles in this volume were originally commissioned as part of a major study of split-rate taxation in Detroit. That study was published by the Lincoln Institute of Land Policy in 2022 as, “ Split-Rate Property Taxation in Detroit: Findings and Recommendations. ” To inform the research under-taken for that study, and to provide key inputs for the simulation modeling of a split-rate tax system for the City of Detroit, three technical papers were written by leading experts in public fi nance. Those papers have been sub-jected to revision and peer review for this volume. Each paper makes impor-tant contributions to our understanding of the ways that split-rate taxation can bene fi t local governments in legacy cities as they seek to promote eco-nomic growth.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"50 1","pages":"647 - 650"},"PeriodicalIF":0.7,"publicationDate":"2022-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41918687","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-11-01DOI: 10.1177/10911421221129956
Zhou Yang, Zackary B. Hawley
Municipalities debating land value taxation or split-rate taxation need empirical evidence to understand how the transition of property tax regimes will affect their tax base. Using a valuable dataset on split-rate taxation from municipalities in Pennsylvania, this article empirically estimates the impacts of split-rate taxation on real estate market values and land values. The estimated impact of switching from conventional property taxation to split-rate taxation on aggregate market values is significantly positive, but the average impact from changing split-rate tax parameters during the sample period is smaller depending on the empirical specification and the sample used. In addition, the impacts vary across property types. Commercial properties appear to benefit more from split-rate taxation compared to residential and industrial uses. The Pennsylvania experience also suggests that split-rate taxes have a negative impact on land values during the sample period, but it does not appear that land values would drastically fall. The findings have important policy implications.
{"title":"Effects of Split-Rate Taxation on Tax Base","authors":"Zhou Yang, Zackary B. Hawley","doi":"10.1177/10911421221129956","DOIUrl":"https://doi.org/10.1177/10911421221129956","url":null,"abstract":"Municipalities debating land value taxation or split-rate taxation need empirical evidence to understand how the transition of property tax regimes will affect their tax base. Using a valuable dataset on split-rate taxation from municipalities in Pennsylvania, this article empirically estimates the impacts of split-rate taxation on real estate market values and land values. The estimated impact of switching from conventional property taxation to split-rate taxation on aggregate market values is significantly positive, but the average impact from changing split-rate tax parameters during the sample period is smaller depending on the empirical specification and the sample used. In addition, the impacts vary across property types. Commercial properties appear to benefit more from split-rate taxation compared to residential and industrial uses. The Pennsylvania experience also suggests that split-rate taxes have a negative impact on land values during the sample period, but it does not appear that land values would drastically fall. The findings have important policy implications.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"50 1","pages":"651 - 679"},"PeriodicalIF":0.7,"publicationDate":"2022-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48860748","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-10-26DOI: 10.1177/10911421221129310
J. Feigenbaum, Tong Jin
It is a truism of neoclassical economics that a sufficiently high savings rate will be bad if it is dynamically inefficient. Here we consider a Solow model in which households follow a savings rate dictated by a social planner. Ideally, the social planner would instruct households to save at the Golden Rule savings rate that maximizes consumption per capita, but this advice needs to be adjusted when the social planner has imperfect control over how much households actually save. Analogous to what happens with precautionary saving at the household level, in this case, the social planner will maximize social welfare by targeting a savings rate higher than the Golden Rule. Precautionary social planning then yields a dynamically inefficient allocation, albeit with greater stability of consumption, which is often a stated priority of social planners.
{"title":"Precautionary Social Planning","authors":"J. Feigenbaum, Tong Jin","doi":"10.1177/10911421221129310","DOIUrl":"https://doi.org/10.1177/10911421221129310","url":null,"abstract":"It is a truism of neoclassical economics that a sufficiently high savings rate will be bad if it is dynamically inefficient. Here we consider a Solow model in which households follow a savings rate dictated by a social planner. Ideally, the social planner would instruct households to save at the Golden Rule savings rate that maximizes consumption per capita, but this advice needs to be adjusted when the social planner has imperfect control over how much households actually save. Analogous to what happens with precautionary saving at the household level, in this case, the social planner will maximize social welfare by targeting a savings rate higher than the Golden Rule. Precautionary social planning then yields a dynamically inefficient allocation, albeit with greater stability of consumption, which is often a stated priority of social planners.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"51 1","pages":"44 - 75"},"PeriodicalIF":0.7,"publicationDate":"2022-10-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42954694","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-10-13DOI: 10.1177/10911421221127098
Rohan Kanti Khan, Sushobhan Mahata, Ranjanendra Narayan Nag
Corruption is a symptom of wider political dynamics intertwined with sectors prone to criminal activities. This arises due to the laxity of legal enforcement or a dysfunctional political system. This paper analytically demonstrates the nexus between organized crime and corruption in the presence of the public sector. The relevant questions at this juncture are: (i) How does capital investment in the industrial sectors affect the crime–corruption nexus? (ii) Why a more stringent law-and-order enforcement may produce counterproductive outcomes? and (iii) Whether the creation of alternative income opportunities in the legally approved sectors by the government will lower corruption and decriminalize society? What we will try to show is that when corruption becomes necessary to sustain the criminal sector, capital expansion and deterrence policy augment crime and corruption. This crucially depends on a multitude of general equilibrium factors including the labor relocation effect, capital relocation effect, and factor intensity of sectors.
{"title":"Capital and Crime–Corruption Nexus in the Shadow of the Law: A Theoretical Analysis of Public Policy","authors":"Rohan Kanti Khan, Sushobhan Mahata, Ranjanendra Narayan Nag","doi":"10.1177/10911421221127098","DOIUrl":"https://doi.org/10.1177/10911421221127098","url":null,"abstract":"Corruption is a symptom of wider political dynamics intertwined with sectors prone to criminal activities. This arises due to the laxity of legal enforcement or a dysfunctional political system. This paper analytically demonstrates the nexus between organized crime and corruption in the presence of the public sector. The relevant questions at this juncture are: (i) How does capital investment in the industrial sectors affect the crime–corruption nexus? (ii) Why a more stringent law-and-order enforcement may produce counterproductive outcomes? and (iii) Whether the creation of alternative income opportunities in the legally approved sectors by the government will lower corruption and decriminalize society? What we will try to show is that when corruption becomes necessary to sustain the criminal sector, capital expansion and deterrence policy augment crime and corruption. This crucially depends on a multitude of general equilibrium factors including the labor relocation effect, capital relocation effect, and factor intensity of sectors.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":" ","pages":""},"PeriodicalIF":0.7,"publicationDate":"2022-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46086849","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-10-13DOI: 10.1177/10911421221126054
P. Prescott, Kathy Paulson Gjerde
This study employs a state-level model of recovery and a comprehensive set of tax- and expenditure-related variables to explore the effect that the states’ fiscal policy decisions had on their recoveries after the Great Recession in the United States. In addition, we combine those findings with our resistance results from two earlier studies to identify the structural and fiscal-policy factors that consistently strengthened or weakened the states’ economic resilience entering, during, and exiting that recession. Although our analysis indicates that resistance and recovery are distinctly different economic resilience phenomena, states that avoided sales and corporate income taxes, and that committed a greater share of their resources to public welfare expenditures, fared better than others throughout. This knowledge may aid state governments’ fiscal policy decision making as they prepare for future recessionary shocks.
{"title":"The Impact of State Fiscal Policy on States’ Resilience Exiting the Great Recession","authors":"P. Prescott, Kathy Paulson Gjerde","doi":"10.1177/10911421221126054","DOIUrl":"https://doi.org/10.1177/10911421221126054","url":null,"abstract":"This study employs a state-level model of recovery and a comprehensive set of tax- and expenditure-related variables to explore the effect that the states’ fiscal policy decisions had on their recoveries after the Great Recession in the United States. In addition, we combine those findings with our resistance results from two earlier studies to identify the structural and fiscal-policy factors that consistently strengthened or weakened the states’ economic resilience entering, during, and exiting that recession. Although our analysis indicates that resistance and recovery are distinctly different economic resilience phenomena, states that avoided sales and corporate income taxes, and that committed a greater share of their resources to public welfare expenditures, fared better than others throughout. This knowledge may aid state governments’ fiscal policy decision making as they prepare for future recessionary shocks.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"51 1","pages":"3 - 43"},"PeriodicalIF":0.7,"publicationDate":"2022-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46063763","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-25DOI: 10.1177/10911421221124572
A. Hanson
This article estimates the relationship between business establishment location and split-rate property taxation. Using variation in split-rate adoption and intensity by municipalities across Pennsylvania, I apply data from the Census’s County Business Patterns (CBP) between 1994 and 2017 to estimate difference-in-difference (DiD) style models. Findings suggest that moving from conventional property taxation to a split-rate system is associated with an initial increase of between 60 and 107 business establishments. The number of business establishments does not appear to be sensitive to changes in the split-rate ratio after implementation, but the initial increase in the number of establishments declines each year after implementation by between 3.3 and 5.5 establishments, or about 5 percent.
{"title":"Split-Rate Taxation and Business Establishment Location: Evidence From the Pennsylvania Experience","authors":"A. Hanson","doi":"10.1177/10911421221124572","DOIUrl":"https://doi.org/10.1177/10911421221124572","url":null,"abstract":"This article estimates the relationship between business establishment location and split-rate property taxation. Using variation in split-rate adoption and intensity by municipalities across Pennsylvania, I apply data from the Census’s County Business Patterns (CBP) between 1994 and 2017 to estimate difference-in-difference (DiD) style models. Findings suggest that moving from conventional property taxation to a split-rate system is associated with an initial increase of between 60 and 107 business establishments. The number of business establishments does not appear to be sensitive to changes in the split-rate ratio after implementation, but the initial increase in the number of establishments declines each year after implementation by between 3.3 and 5.5 establishments, or about 5 percent.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"50 1","pages":"680 - 703"},"PeriodicalIF":0.7,"publicationDate":"2022-09-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42700590","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-25DOI: 10.1177/10911421221121029
Simon Berset, Mark Schelker
The traditional literature on fiscal federalism prescribes centralization of redistributive tasks to avoid welfare- or tax-induced migration. More recent work shows that even if the redistributive part of taxation, namely progressivity, is set by an upper-layer government and lower-layer governments only compete via a tax multiplier, income sorting can flatten effective tax progressivity. We argue that upper-layer governments anticipate the impact of local income sorting and strategically adjust their statutory tax schedules. The mobility of the income tax base sets limits to such strategic behavior. We apply causal machine learning methods to identify the effects of decentralization on the statutory tax structure in Switzerland. More decentralized cantons implement more redistributive statutory tax schedules for the least-mobile household types.
{"title":"Decentralization and Progressive Taxation","authors":"Simon Berset, Mark Schelker","doi":"10.1177/10911421221121029","DOIUrl":"https://doi.org/10.1177/10911421221121029","url":null,"abstract":"The traditional literature on fiscal federalism prescribes centralization of redistributive tasks to avoid welfare- or tax-induced migration. More recent work shows that even if the redistributive part of taxation, namely progressivity, is set by an upper-layer government and lower-layer governments only compete via a tax multiplier, income sorting can flatten effective tax progressivity. We argue that upper-layer governments anticipate the impact of local income sorting and strategically adjust their statutory tax schedules. The mobility of the income tax base sets limits to such strategic behavior. We apply causal machine learning methods to identify the effects of decentralization on the statutory tax structure in Switzerland. More decentralized cantons implement more redistributive statutory tax schedules for the least-mobile household types.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"51 1","pages":"206 - 235"},"PeriodicalIF":0.7,"publicationDate":"2022-09-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"65371383","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-25DOI: 10.1177/10911421221125598
Andrea Albarea, Michele Bernasconi, A. Marenzi, Dino Rizzi
It is sometimes argued that a flat-rate tax reform can reduce tax noncompliance. The argument is, however, inconsistent with the so-called Yitzhaki’s puzzle of the classical expected utility (EU) model. The latter predicts an increase, rather than a reduction, in tax evasion following a cut in the tax rates resulting from a flat-rate reform. We study the impact of a flat-rate tax in a microsimulation tax-benefit model of Italy, which allows us to analyze various hypotheses of tax evasion behavior. In addition to the EU model, we analyze expected utility with rank dependent probabilities (EURDP) and the model of reference dependent (RD) preference, the most favorable to overturn Yitzhaki’s puzzle. Our simulations show that a flat-rate tax would barely reduce overall evasion in Italy in all models considered. Redistributive effects are in all cases, large.
{"title":"Tax Evasion, Behavioral Microsimulation Models and Flat-Rate Tax Reforms: Analysis for Italy","authors":"Andrea Albarea, Michele Bernasconi, A. Marenzi, Dino Rizzi","doi":"10.1177/10911421221125598","DOIUrl":"https://doi.org/10.1177/10911421221125598","url":null,"abstract":"It is sometimes argued that a flat-rate tax reform can reduce tax noncompliance. The argument is, however, inconsistent with the so-called Yitzhaki’s puzzle of the classical expected utility (EU) model. The latter predicts an increase, rather than a reduction, in tax evasion following a cut in the tax rates resulting from a flat-rate reform. We study the impact of a flat-rate tax in a microsimulation tax-benefit model of Italy, which allows us to analyze various hypotheses of tax evasion behavior. In addition to the EU model, we analyze expected utility with rank dependent probabilities (EURDP) and the model of reference dependent (RD) preference, the most favorable to overturn Yitzhaki’s puzzle. Our simulations show that a flat-rate tax would barely reduce overall evasion in Italy in all models considered. Redistributive effects are in all cases, large.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"51 1","pages":"262 - 310"},"PeriodicalIF":0.7,"publicationDate":"2022-09-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45119016","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1177/10911421221117713
M. Strawczynski, Oren Tirosh
In a world where machines replace unskilled work, an active labor market policy—represented by the combination of an optimal Earned Income Tax Credit (EITC) and income maintenance for the unemployed—provides incentives to increase participation in the labor market and depresses wages for unskilled employees. In this paper, this policy is tested against the alternative of allowing unskilled workers to receive a means-tested basic income (MTBI), as recently adopted by Spain. For a liberal social planner (i.e., includes consumption and leisure in individual utility), the MTBI dominates the active labor market policy. For a conservative social planner (i.e., evaluates social welfare based on individual utility from consumption), the active labor market policy dominates the MTBI. The potential dynamic effects of active labor policy on labor supply were considered in a simulation using updated empirical estimates; it shows that this policy becomes preferable for both types of the social planner.
{"title":"Government Welfare Policy Under a Skilled-Biased Technological Change","authors":"M. Strawczynski, Oren Tirosh","doi":"10.1177/10911421221117713","DOIUrl":"https://doi.org/10.1177/10911421221117713","url":null,"abstract":"In a world where machines replace unskilled work, an active labor market policy—represented by the combination of an optimal Earned Income Tax Credit (EITC) and income maintenance for the unemployed—provides incentives to increase participation in the labor market and depresses wages for unskilled employees. In this paper, this policy is tested against the alternative of allowing unskilled workers to receive a means-tested basic income (MTBI), as recently adopted by Spain. For a liberal social planner (i.e., includes consumption and leisure in individual utility), the MTBI dominates the active labor market policy. For a conservative social planner (i.e., evaluates social welfare based on individual utility from consumption), the active labor market policy dominates the MTBI. The potential dynamic effects of active labor policy on labor supply were considered in a simulation using updated empirical estimates; it shows that this policy becomes preferable for both types of the social planner.","PeriodicalId":46919,"journal":{"name":"PUBLIC FINANCE REVIEW","volume":"50 1","pages":"515 - 557"},"PeriodicalIF":0.7,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42766725","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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