public capital in the 21st century as productive as ever abstractthe global financial crisis and the euro area sovereign debt crisis that followed induced a rapid deterioration in the fiscal positions of countries across the globe in the ensuing fiscal

the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

applications of behavioural economics to tax evasion the paper reviews recent models that have applied the techniques of behavioural economics to the analysis of the tax compliance choice of an individual taxpayer the construction of these models is motivated by the failure of the yitzhaki version of the allingham sandmo model to predict correctly the proportion of taxpayers who will evade and the effect of an increase in the tax rate upon the chosen level of evasion recent approaches have applied non expected utility theory to the compliance decision and have addressed social interaction the models we describe are able to match the observed extent of evasion and correctly predict the tax effect but do not have the parsimony or precision of the yitzhaki model

optimal redistribution and monitoring of labor supply this paper extends the mirrlees 1971 model of optimal non linear income taxation with a monitoring technology that allows the government to verify labor supply at a positive but non infinite cost we analyze the joint determination of the non linear monitoring and tax schedules and the conditions under which these can be implemented monitoring of labor supply reduces the distortions created by income taxation and raises optimal marginal tax rates possibly above 100 the optimal intensity of monitoring increases with the marginal tax rate and the labor supply elasticity our simulations demonstrate that monitoring strongly alleviates the trade off between equity and efficiency welfare gains of monitoring are around 2 8 of total output the optimal intensity of monitoring follows a u shaped pattern similar to that of optimal marginal tax rates our paper can explain why large welfare states optimally rely on work dependent tax credits active labor market policies benefit sanctions and work bonuses in welfare programs

the political economy of mass privatisation and imperfect taxation winners and loosers this article investigates the connection between the apparently uncorrelated issues of tax evasion and privatisation in a political economy framework we first consider how the political process given a country s level of development and income distribution will affect the efficiency of the tax system we then discuss the impact of the efficiency of the taxation system on the outcomes of privatisation we consider under which condition privatisation will proceed and who will be the political supporters as well as the main winners of the privatisation process moreover we investigate the impact of different forms of corruption both on the initial public support for privatisation as well as on its long term political sustainability

the u s and u k great depressions through the lens of neoclassical growth theory neoclassical growth theory is increasingly being used to study great depressions see e g mario j crucini and james kahn 1996 cole and ohanian 1999 2001a b 2002 michael bordo et al 2000 see also the january 2002 issue of the review of economic dynamics this paper extends our recent work that focuses on why the u s and u k great depressions lasted so long one of the key messages from our work is that the standard neoclassical growth model fails to account for the long duration of these depressions this paper extends our work by diagnosing the specific failures of the model we do this by measuring the deviations in the model s first order conditions we then use these deviations to identify particular factors that might account for these long durations we find very large deviations in the model s household labor efficiency condition in both countries and in the firm s labor efficiency condition in the united states these deviations provide new support for our recent conclusions that distorting labor market policies are key factors behind the long durations of both depressions cole and ohanian 2001a b

interest rate restrictions in a natural experiment loan allocation and the change in the usury laws in 1714 this article studies the effects of interest rate restrictions on loan allocation the british government tightened the usury laws in 1714 reducing the maximum permissible interest rate from 6 to 5 a sample of individual loan transactions reveals that average loan size and minimum loan size increased strongly while access to credit worsened for those with little social capital collateralised credits which had accounted for a declining share of total lending returned to their former role of prominence our results suggest that the usury laws distorted credit markets significantly we find no evidence that they offered a form of pareto improving social insurance almost since the beginning of recorded history usury restrictions have been widely used the laws of hammurabi from the 2nd millennium bc regulated interest rates as did the old testament and the catholic church while early rules often outlawed the taking of interest altogether later restrictions stipulated maximum permissible interest rates to the present day many developing and islamic countries and us states impose limits on private loan contracts to stamp out predatory lending by credit sharks only recently italy re introduced a law against usurious credit contracts glaeser and scheinkman 1998 blitz and long 1965 homer and sylla 1996 the effects of usury regulation have remained controversial numerous scholars have argued that they had damaging consequences and that this conclusion applies to both

risk sharing in licensing abstract this paper studies the design of linear license contracts under demand or cost uncertainty the optimal contract consists in general of a mix of a fixed fee and royalties the source of uncertainty has a crucial impact on the type of royalties that must be used in particular under demand uncertainty at most two of the instruments are used the contract generally combines a fixed fee with an ad valorem royalty when cost is uncertain a wider variety of cases can arise the contract may involve a combination of either type of royalties coupled with a fixed fee alternatively it may be optimal to use all three available instruments

does neoclassical theory account for the effects of big fiscal shocks evidence from world war ii much debate surrounds the usefulness of the neoclassical growth model for assessing the macroeconomic impact of fiscal shocks we test the theory using data from world war ii which is by far the largest fiscal shock in the history of the united states we take observed changes in fiscal policy during the war as inputs into a parameterized dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock

government spending and private consumption this paper investigates the macroeconomic effects of anticipations about future fiscal expenditures within a simple perfect foresight general equilibrium model this paper extends s djajic 1987 by investigating an anticipated permanent increase in government spending an anticipated permanent increase may temporarily stimulate capital accumulation the questions of whether anticipated or unanticipated changes in government spending have a larger effect on capital accumulation and output is related to the questions of whether government spending is initially above or below the optimal level

optimal taxation in the presence of tax evasion expected utility versus prospect theory abstract it is now well known that the predictions of expected utility theory eut applied to tax evasion are quantitatively and qualitatively at variance with the evidence while prospect theory pt makes the correct predictions in this literature the tax rate is exogenous we endogenize the tax rate and require that a successful theory should explain jointly the facts on the tax rate tax gap and the level of government expenditure we find that the data is best described by taxpayers using pt and the government using standard utility theory eut the results are robust to several possible alternative specifications we discuss how our results have a bearing on the debate between liberalism versus paternalism in behavioral economics we also propose an alternative explanation based on the notion of context dependent preferences

an econometric analysis of income tax evasion and its detection this article presents an econometric analysis of income tax evasion and its detection based on individual level data drawn from the internal revenue service 1982 and 1985 taxpayer compliance measurement programs i specify a model consisting of two equations the first measures the extent of evasion the second the fraction of evasion detected the empirical analysis explores the effects of income the marginal tax rate and various socioeconomic characteristics on filer evasion behavior and it assesses the variability in detection rates among irs examiners finally i use the empirical estimates to construct new estimates of the income tax gap the new estimates are very close to the previous irs estimates

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

great recession slow recovery and muted fiscal policies in the us this paper reconsiders the role of macroeconomic shocks and policies in determining the great recession and the subsequent recovery in the us the great recession was mainly caused by a large demand shock and by the zlb on the interest rate policy in contrast with previous findings the subsequent jobless recovery is explained by the zlb effect we estimate a fraction of non ricardian households which is close to 50 and obtain comparatively large fiscal multipliers however we cannot detect a significant contribution of fiscal policies in stabilizing the us economy for instance the 2007 2009 large increase in expenditure to gdp ratios was apparently determined by the adverse non policy shocks that caused the recession

majority voting and the welfare implications of tax avoidance abstract a benchmark result in the political economy of taxation is that majority voting over a linear income tax schedule will result in an inefficiently high tax rate whenever the median voter has a below average income the present paper examines the role of tax avoidance for this welfare result for a right skewed distribution of taxed income we show that the political distortion from majority voting is increasing in the median voter s avoidance vice versa keeping the decisive voter s avoidance constant the political inefficiency is decreasing in the average level of avoidance in the economy

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

approaches for estimating noncompliance examples from federal taxation in the united states crime and underground economic activity are a fact of life around the world most societies attempt to control these activities through the expenditure of resources on monitoring prosecution punishment and educational programmes gathering statistics about who is engaging in illegal or underground activity the frequencies with which various crimes or underground transactions are occurring and the severity or magnitude of these acts is crucial for making good decisions regarding our allocation of resources in this area unfortunately in general it is very difficult to obtain accurate information about these issues this is partly because the individuals engaged in such activities wish not to be identified and often take actions to avoid detection and partly because by their very nature the activities tend not to generate economic accounting legal demographic or other cultural records the fact that it is difficult to obtain accurate information about the activities however does not in any way imply that we should not make a concerted effort to try to obtain the best information we can i believe the cost associated with attempting to determine the extent and nature of these activities is in most circumstances well below the expected benefit which includes the likelihood of improved decisionmaking by relevant government personnel and the general public as a result i also believe the debate about developing estimates of illegal or underground economic activity should primarily focus on practical issues related to how best to go about developing estimates that are as reliable as possible in this short article i shall discuss the measurement of noncompliance with laws and regulations my particular area of expertise and shall not discuss the measurement of other kinds of hidden economic behaviours such as informal contracting unmeasured home production and grey market activities in particular i shall discuss three approaches for estimating the aggregate amount of noncompliance with respect to a specific law or regulation i intensive data collection for a focused subsample of the population ii detection controlled estimation and iii the comparision of estimates generated by distinct datasets and models for each i shall describe in general terms what the approach is and how it is implemented review limitations of the approach and present an example of the application of the approach to the measurement of tax noncompliance in the united states my discussion shall necessarily be short and i refer the interested reader to a variety of original research publications for more details especially about the specific examples

the effect of government spending on private consumption a puzzle the empirical finding that cyclical changes in government spending tend to be associated with positive responses of private consumption has been interpreted as a challenge for representative agent intertemporal optimizing theories which usually imply that the negative wealth effect of higher fiscal spending reduces the households consumption and leisure the present paper shows that the evidence can be explained by a standard real business cycle type model with a nonadditively separable utility function and a small intertemporal consumption elasticity higher fiscal spending can raise consumption and lower investment as in the data the nonseparable utility model is shown to imply the same consumption euler equation as a model with rule of thumb consumers who mechanically spend their income

temporary and permanent government spending in an open economy some evidence for the united kingdom abstract this paper investigates the effects of government spending changes on a small open economy in an intertemporal substitution framework if agents internalize the government s budget constraint temporary and permanent spending have different implications for wealth and consequently different effects on output and the balance of trade estimation of these effects isolates the different channels through which government spending can influence economic activity main findings for the united kingdom are that government spending i crowds out private spending ii is directly productive and iii when rising permanently leads to a negative wealth effect which induces a large rise in work effort

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

tax evasion and the optimum general income tax abstract this paper incorporates tax evasion into an optimum general income tax problem with endogenous labor supply it posits a two group model with high and low wage individuals to investigate the properties of optimal audit and tax structures the following main results are obtained first high wage persons are never audited while low wage persons are audited with a probability strictly less than one secondly high wage persons should face a zero marginal tax rate thirdly low wage individuals who have been audited and found innocent should pay a lower tax than those who are not audited fourthly there are two possible tax regimes low wage persons face a positive marginal tax rate under one regime and a zero rate under the other fifthly even if honesty cannot be rewarded the other results of the paper continue to hold

local autonomy tax morale and the shadow economy policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale however there is an alternative bottom up approach that decentralises political power to those who are close to the problems this paper analyses the relationship with local autonomy we use data on tax morale at the individual level and macro data on the size of the shadow economy to analyse the relevance of local autonomy and compliance in switzerland the findings suggest that there is a positive negative relationship between local autonomy and tax morale size of the shadow economy

taxpayer response to an increased probability of audit evidence from a controlled experiment in minnesota abstract in 1995 a group of 1724 randomly selected minnesota taxpayers was informed by letter that the returns they were about to file would be closely examined compared to a control group that did not receive this letter low and middle income taxpayers in the treatment group on average increased tax payments compared to the previous year which we interpret as indicating the presence of noncompliance the effect was much stronger for those with more opportunity to evade in fact the difference in differences is not statistically significant for those who do not have self employment or farm income and do not pay estimated tax surprisingly however the reported tax liability of the high income treatment group fell sharply relative to the control group

evading auditing and taxing the equity compliance tradeoff tax evasion and auditing are analyzed in a model of linear income taxation taxpayers minimize expected tax payments including penalty for underreporting while the tax administration sets its audit policy to maximize expected net revenue under the restriction of only two audit rates per class of taxpayers given the reaction of taxpayers and tax administration we derive the optimal income tax that the government should adopt to maximize social welfare there are several classes of taxpayers each characterized by a given distribution of pretax income and specific audit policy parameters

debt sustainability in historical perspective the role of fiscal repression this article examines the debt history of two contenders for european hegemony 16th century spain and 18th century britain we analyze their fiscal behavior using measures of overborrowing and fiscal policy functions our results suggest that stringency was not key for britain s success in avoiding default instead fiscal repression allowed the united kingdom to borrow at below market rates thereby outspending its continental rivals jel e4 f41 n23

some fiscal calculus what is the impact of fiscal policy on the econ omy how large are the multipliers of govern ment spending and tax cuts this old question has recently received considerable attention in par ticular in the context of the american recovery and reinvestment act arra of 2009 i contribute to answering that question by calculating fiscal multipliers in a baseline neo classical growth model with endogenous labor supply and fiscal policy allowing for govern ment spending transfers government debt and distortionary taxes on labor and capital income the policy experiments are conducted holding transfers consumption taxes and capital income taxes fixed i e changes in taxation require changes in the distortionary labor tax the model is simple and fairly standard as an additional contribution i provide the model in an elegant and tractable form starting from a fairly general formulation and pointing out the key functional form properties for characterizing the dynamics the formulation of the model here or versions

macroeconomic effects from government purchases and taxes for u s annual data that include world war ii the estimated multiplier for temporary defense spending is 0 4 0 5 contemporaneously and 0 6 0 7 over 2 years if the change in defense spending is permanent gauged by ramey s defense news variable the multipliers are higher by 0 1 0 2 since all estimated multipliers are significantly less than 1 greater spending crowds out other components of gdp particularly investment the lack of good instruments prevents estimation of reliable multipliers for nondefense purchases multipliers in the literature of two or more likely reflect reverse causation from gdp to nondefense purchases increases in average marginal income tax rates measured by a newly constructed time series have significantly negative effects on gdp when interpreted as a tax multiplier the magnitude is around 1 1 the combination of the estimated spending and tax multipliers implies that the balanced budget multiplier for defense spending is negative we have some evidence that tax changes affect gdp mainly through substitution effects rather than wealth effects

tax evasion and self insurance abstract this paper examines the effect of an increase in the tax rates on tax evasion in a model where taxpayers self insure against possible penalties the analysis shows that the effect depends on the marginal productivity of self insurance if the marginal productivity is not too small an increase in the tax rates leads to greater tax evasion and less tax compliance this result stands in contrast with the theoretical result in the literature but accords well with empirical findings

government investment and fiscal stimulus effects of government investment are studied in an estimated neoclassical growth model the analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus implementation delays for building public capital and expected fiscal adjustments to deficit financed spending implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run anticipated fiscal adjustments matter both quantitatively and qualitatively for long run growth effects when public capital is insufficiently productive distorting financing can make government investment contractionary at longer horizons

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

tax progressivity income distribution and tax non compliance this article examines the determinants of tax non compliance when we recognise the existence of an imperfectly competitive tax advice industry supplying schemes which help taxpayers reduce their tax liability we apply a traditional industrial organisation framework to model the behaviour of this industry this tells us that an important factor determining the equilibrium price and hence the level of noncompliance is the convexity of the demand schedule we show that in this context this convexity is affected by the distribution of pre tax income the progressivity of the tax schedule and the way in which monitoring and penalties vary with income it is shown that lower pre tax income inequality as well as a less progressive tax code may cause more tax minimisation activities therefore the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline one way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions

government spending interest rates prices and budget deficits in the united kingdom 1701 1918 abstract the british data from the early 1700s through wwi provide an unmatched opportunity for studying temporary changes in government purchases temporary increases which appeared mainly as wartime spending raised long term interest rates but significantly increased the growth rates of money and prices only during suspensions of the gold standard 1797 1821 and 1914 1918 temporary changes in military spending accounted for the bulk of budget deficits over the sample of more than 200 years i found only two major non war deficits one associated with compensation payments to slaveowners in 1835 1936 and the other with a dispute over the income tax in 1909 1910 interest rates did not react much to these exogenous deficits

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

tax evasion and capital gains taxation this paper uses time series data to investigate how changes in capital gains tax rates affect taxpayer compliance it finds that a one percent increase in the marginal tax rate reduces voluntary compliance by between one half and one percent these results confirm the findings of previous studies based on individual household data they also suggest that at least one quarter of the observed capital gain realization response to changes in marginal tax rates is due to changes in reporting behavior rather than portfolio behavior this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

a contest with the taxman the impact of tax rates on tax evasion and wastefully invested resources abstract we develop a moral hazard model with auditing where both the principal and the agent can influence the probability that the true state of nature is verified this setting is widely applicable for situations where fraudulent reporting with costly state verification takes place however we use the framework to investigate tax evasion we model tax evasion as a concealment detection contest between the taxpayer and the authority we show that higher tax rates cause more evasion and increase the resources wasted in the contest additionally we find conditions under which a government should enforce incentive compatible auditing in order to reduce wasted resources

honesty and evasion in the tax compliance game conventional models of tax compliance emphasize that taxpayers make strategic tax reports underreporting income to the extent that this behavior is functionally rewarded in contrast to this view considerable empirical evidence suggests that many taxpayers are inherently honest reporting truthfully regardless of the incentive to cheat in this article we build a game theoretic model of tax compliance that includes both honest and potentially dishonest taxpayers we show that including honest taxpayers significantly alters the model leading to much improved empirical predictions and somewhat different and novel policy implications

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

government spending and private consumption some international evidence this paper investigates the relationship between private consumption and publicly provided goods and services for a number of countries the empirical results show that in the aggregate private and government consumption are best described as complementary in the sense that an increase in one raises the marginal utility of the other the strength of this relationship is shown to be negatively affected by the government size these findings are robust across all specifications tried copyright 1994 by ohio state university press

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

unemployment fiscal multipliers we estimate the effects of fiscal policy on the labor market in us data an increase in government spending of 1 percent of gdp generates output and unemployment multipliers respectively of about 1 2 percent at one year and 0 6 percentage points at the peak each percentage point increase in gdp produces an increase in employment of about 1 3 million jobs total hours employment and the job finding probability all rise whereas the separation rate falls a standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization extending the model to strengthen the complementarity in preferences to include unemployment benefits real wage rigidity and or debt financing with distortionary taxation only worsens the picture new keynesian features only marginally magnify the size of the multipliers when complementarity is coupled with price stickiness however the magnification effect can be large

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

tax structure and tax compliance a model of individual tax compliance behavior including evasion and avoidance is developed and estimated the model recognizes the importance of marginal income tax rates payroll tax contributions and benefits and the probabil ity of detection and the penalty on unpaid taxes share equations for avoidance evasion and reported income are estimated using individual level data the estimation results indicate that the tax base rises with higher benefits for payroll tax contributions and falls with higher marginal tax rates the base also falls with more severe penalties and more certain detection of evasion as individuals substitute towards avoid ance income t he methods by which individuals reduce their tax liabilities take a variety of legal and illegal forms all of which are influenced at least in part by incentives created by the tax structure these methods can be broadly classified as avoid ance and evasion tax avoidance is any legal activity that lowers taxes such as worker substitu tion between wage and nonwage compensation tax evasion is the reduction in tax liabilities by illegal means such as underreporting income on tax returns despite extensive but separate literatures on avoidance and evasion we know very little about the tax base response to changes in tax structure it is the purpose of this paper to examine the role that the tax structure plays in compliance there are several reasons for the persistence of the compliance puzzle most prominent is the absence of detailed individual data that would allow a full empirical specification of all factors affecting compliance this difficulty is most evi dent when searching for individual data on the evasion compliance decision even when avail able data have never allowed in the same work the construction of both tax and audit variables 1 clearly data availability is even more problem atic when looking at the choice among evasion avoidance and reported income in addition pre vious work has not looked at the avoidance evasion compliance decision as a joint process even though these decisions are made simultane ously 2 further both strands of the literature have ignored another factor that may affect the compliance decision the benefits that accrue from participation in payroll programs if benefits are tied only to taxable income then their presence gives individuals an incentive to pay taxes in short there has been no empirical work that analyzes the effects of tax rates probabilities penalties and payroll benefits on avoidance and evasion choices of individuals in this paper we provide such an analysis we first develop a theory of individual choice among the three types of compensation we then esti mate the resulting share demand equations using a unique data set which has detailed information on the compensation paid to roughly one quarter of the labor force in jamaica in 1983 from these data we are able to derive measures of reported taxable income evasion income and avoidance income for individual workers in the formal sec tor we are also able to construct measures of the marginal income tax rate marginal payroll taxes and benefits the probability of detection and the penalty on evasion for individual workers we are therefore able to estimate for the first time the responses of workers to the full range of tax structure parameters section i presents the theoretical model of worker compensation choice and the empirical specification of the model section ii discusses the jamaican tax system data and variable con struction are discussed in section iii estimation results are presented in section iv the final section summarizes the main results

state capacity and military conflict powerful centralized states controlling a large share of national income only begin to appear in europe after 1500 we build a model that explains their emergence in response to the increasing importance of money for military success when fiscal resources are not crucial for winning wars the threat of external conflict stifles state building as finance becomes critical internally cohesive states invest in state capacity while divided states rationally drop out of the competition causing divergence we emphasize the role of the military revolution a sequence of technological innovations that transformed armed conflict using data from 374 battles we investigate empirically both the importance of money for military success and patterns of state building in early modern europe the evidence is consistent with the predictions of our model

tax evasion concealment and the optimal linear income tax this paper incorporates tax evasion into the analysis of optimal linear income taxation taxevaders can influence the probability of being caught if audited through expenditures on concealment it is proved that tax evasion can make a given tax system more as well as less progressive depending on the concealment technology the paper derives and interprets simple formulas for characterizing the optimal tax rate and audit probability it also gives sufficient conditions under which tax evasion lowers the optimal tax rate while showing that an increase in the optimal tax rate is also possible

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

income tax evasion labour supply and the equity efficiency tradeoff abstract this paper is an attempt to incorporate tax evasion into the analysis of optimum income taxation a model of variable labour supply with tax evasion is used to derive supply functions for labour in regular and irregular markets given taxpayer behaviour the government chooses tax rates penalties and the probability of detection to maximize a utilitarian social welfare function the results consist in the derivation of a formula for the optimum marginal tax rate and a characterization of the factors determining the choice between the penalty rate and the probability of detection as instruments for the control of tax evasion

deterrence vs gamesmanship taxpayer response to targeted audits and endogenous penalties abstract taxpayers with large amounts of non third party reported income usually self report at least a portion of it an act inconsistent with common theories of compliance i explain this behavior by generalizing the classical evasion theory to realistically account for the endogeneity of audit and payment rates these taxpayers refrain from more evasion not due to deterrence but to tilt the odds and payoffs of the evasion gamble the introduction of this incentive helps explain many empirical findings that seemingly contradict a more restrictive and unrealistic version of the deterrence paradigm i also estimate feasible structural calibrations the first based on observed compliance behavior of taxpayers perceptions of the relationship between evasion audit probabilities and payment rates

predictive analytics and the targeting of audits the literature on audit strategies has focused on random audits or on audits conditioned only on income declaration in contrast tax authorities employ the tools of predictive analytics to identify taxpayers for audit with a range of variables used for conditioning the paper explores the compliance and revenue consequences of the use of predictive analytics in an agent based model that draws upon a behavioral approach to tax compliance the taxpayers in the model form subjective beliefs about the probability of audit from social interaction and are guided by a social custom that is developed from meeting other taxpayers the belief and social custom feed into the occupational choice between employment and two forms of self employment it is shown that the use of predictive analytics yields a significant increase in revenue over a random audit strategy

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

is environmental income reporting evasive in household surveys evidence from rural poor in laos abstract literature has consistently reiterated that the self employed non poor underreport their business income to tax authorities and in household surveys in this work we measure the extent to which poor households engaging in illegal environmental activities underreport income in laos we use a two year panel data and apply the engel curve to detect and estimate the reporting gap we further use a switching probit regression to identify the factors of income underreporting and its impact on income poverty outcomes results show that on an average rural households who earn at least a quarter of their income from the environment underreport by over 50 in household surveys resulting in overestimation of income poverty moreover we find that a perceived threat to food security drives rural poor to engage in illegal environmental extraction

propagation mechanisms for government spending shocks a bayesian comparison the inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures observed in many empirical studies has stimulated the development of alternative theories of government spending shocks using the bayesian approach we evaluate the quantitative performance of five extant models and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model moreover we find that consumption decreases in all estimated models in response to a rise in government spending

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

tax evasion and social interactions the paper extends the standard tax evasion model by allowing for social interactions in manski s manski c f 1993 identification of endogenous social effects the reflection problem review of economic studies 60 3 531 542 nomenclature our model takes into account endogenous interactions i e social conformity effects exogenous interactions i e fairness effects and correlated effects our model is tested using experimental data participants must decide how much income to report given individual and group tax rates and audit probabilities and given a feedback on the other members reporting behavior myopic and self consistent expectations are considered in the analysis in the latter case the estimation is based on a two limit simultaneous tobit with fixed group effects a unique social equilibrium exists when the model satisfies coherency conditions in line with brock and durlauf brock w a durlauf s n 2001b interactions based models in j heckman and e leamer eds handbook of econometrics 5 elsevier science b v 3297 380 the intrinsic nonlinearity between individual and group responses helps identify the model our results provide evidence of fairness effects but reject social conformity

local identification in dsge models abstract the issue of identification arises whenever structural models are estimated lack of identification means that the empirical implications of some model parameters are either undetectable or indistinguishable from the implications of other parameters therefore identifiability must be verified prior to estimation this paper provides a simple method for conducting local identification analysis in linearized dsge models estimated in both full and limited information settings in addition to establishing which parameters are locally identified and which are not researchers can determine whether the identification failures are due to data limitations such as lack of observations for some variables or whether they are intrinsic to the structure of the model the methodology is illustrated using a medium scale dsge model

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

the excess burden of tax evasion an experimental detection concealment contest abstract tax evasion may cause social welfare losses due to the incentives of taxpayers to invest in the concealment and of tax authorities to invest in the detection of tax evasion reducing the investment of both parties at the same time would then lead to a pareto improvement given that concealment and detection costs are hardly measurable in reality we show in a controlled laboratory experiment that the welfare losses from a concealment detection contest depend positively on the prevailing tax rate but not on the penalty which is imposed in case of detected tax evasion hence policy makers who are concerned about socially inefficient concealment and enforcement costs should focus on tax rates rather than penalty rates

samurai accountant a theory of auditing and plunder a risk neutral principal wishes to exact a payment from a risk neutral agent whose wealth he does not know but may verify through a costly auditing procedure we characterize efficient schemes for the principal when he is allowed to choose schedules for preaudit and postaudit payments and audit probabilities subject to the constraint that only monetary incentives can be used and that the principal may never make a net payment to the agent the main results are that efficient schemes involve preaudit payments which are increasing in the agent s wealth audit probabilities are decreasing in the agent s wealth and also satisfy certain constraints as equalities in general such schemes involve stochastic auditing and rebates after an audit in this paper we analyse the problem of a principal extracting wealth from an agent who is reluctant to part with it and is also better informed than the principal as to the amount he owns we assume that the principal has a costly means of discovering the agent s

tax morale affects tax compliance evidence from surveys and an artefactual field experiment our working hypothesis is that cross cultural differences in tax compliance behavior have foundations in the institutions of tax administration and citizen assessment of the quality of governance tax compliance being a complex behavioral issue its investigation requires use of a variety of methods and data sources results from artefactual field experiments conducted in countries with substantially different political histories and records of governance quality demonstrate that observed differences in tax compliance levels persist over alternative levels of enforcement the experimental results are shown to be robust by replicating them for the same countries using survey response measures of tax compliance

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

public goods merit goods and the relation between private and government consumption in this paper we investigate the relation between public and private consumption by constructing a general government spending data set by function for 12 european countries in particular we split government consumption into two categories the 1rst category public goods includes defence public order and justice the second category merit goods includes health education and other services that could have been provided privately equations from a relatively general permanent income model are estimated by gmm the estimates are fairly robust in showing that public goods substitute while merit goods complement private consumption however the relation between merit goods and private goods turns out to be stronger than that between public goods and private goods thus in the aggregate government and private consumption are complements c

higher taxes more evasion evidence from border differentials in tv license fees this paper studies the evasion of tv license fees in austria we exploit border differentials to identify the effect of fees on evasion comparing municipalities at the low and high fee side of state borders reveals that higher fees trigger significantly more evasion our preferred estimator indicates that a one percent increase in fees raises the evasion rate by 0 3 percentage points the positive effect of fees on evasion is confirmed in different parametric and non parametric approaches and survives several robustness checks