Limits of Tax Policy
(2000) In Lund Economic Studies- Abstract
- The size of government has increased dramatically over the last century. Given the magnitude of government involvement in the economy and the potential influence it has on individuals as well as the economy, studies documenting the effects of government size may offer particularly timely insights. This thesis addresses some of these issues.
Chapter two and three deal with welfare reform. Welfare systems are currently under criticism worldwide. Many of these reforms aim to provide incentives for welfare recipients to join the work force, something often currently lacking. The second chapter estimates effective marginal tax rates for earned and unearned income over the entire income distribution in the U.S., defined as the... (More) - The size of government has increased dramatically over the last century. Given the magnitude of government involvement in the economy and the potential influence it has on individuals as well as the economy, studies documenting the effects of government size may offer particularly timely insights. This thesis addresses some of these issues.
Chapter two and three deal with welfare reform. Welfare systems are currently under criticism worldwide. Many of these reforms aim to provide incentives for welfare recipients to join the work force, something often currently lacking. The second chapter estimates effective marginal tax rates for earned and unearned income over the entire income distribution in the U.S., defined as the change in net payments to government from all taxes and means-tested welfare programs resulting from a unit rise in income. Estimated marginal tax rates are very high for low-income households, which suggests that concerns about the disincentive effects of current welfare system are well founded. Chapter three subsequently develops a model that derives bounds on the optimal benefit-reduction rate, that is the rate at which welfare recipients lose welfare when their income increases by a unit. Specifically, the optimal income taxation model is augmented with the benefit-reduction rate. In some countries, Sweden for example, I find estimated optimal rates that are clearly below actual prevailing rates.
Chapter four examines the effect of government size on the economy. The relationship between government size and growth is estimated using panel-data from 21 OECD countries over the period 1973-1992. I use a fixed effects estimation model that controls for country- and time-specific fixed factors that may confound simpler estimators. The result is a negative and statistically significant relationship between the size of government and the growth rate. When I omit these fixed factors, however, this relationship disappears suggesting that many earlier studies may have important statistical problems.
Finally, I ask in the last chapter whether the large government sizes that have evolved are sustainable or whether government sizes have peaked in industrialized countries and are now decreasing due to limits to taxation. Theoretical limits to the government size are computed in a Laffer-style model, and then compared to actual measures of fiscal sizes of government in 22 OECD countries. To make comparisons between numbers derived in the model and actual data meaningful, I introduce a measure of fiscal size that is more consistent with our theoretical tax model. I find support for the hypothesis that declines in government sizes may be a result of limits to taxation. (Less) - Abstract (Swedish)
- Popular Abstract in Swedish
Den offentliga sektorn har vuxit drastiskt under det senaste århundradet och utgör idag en stor del av ekonomin i många västländer. Givet storleken på den offentliga sektorn och dess potentiella inflytande över såväl enskilda individer som samhälle är studier som dokumenterar effekterna av den offentliga sektorn värdefulla. Denna avhandling "Den Offentliga Sektorns Begränsningar" behandlar en rad begränsningar och dilemman som den offentliga sektorn står inför.
Det första kapitlet är ett inledande och sammanfattande kapitel som dels beskriver hur den offentliga sektorn har vuxit över tiden och dels sammanfattar kommande kapitel.
De två nästföljande kapitlena... (More) - Popular Abstract in Swedish
Den offentliga sektorn har vuxit drastiskt under det senaste århundradet och utgör idag en stor del av ekonomin i många västländer. Givet storleken på den offentliga sektorn och dess potentiella inflytande över såväl enskilda individer som samhälle är studier som dokumenterar effekterna av den offentliga sektorn värdefulla. Denna avhandling "Den Offentliga Sektorns Begränsningar" behandlar en rad begränsningar och dilemman som den offentliga sektorn står inför.
Det första kapitlet är ett inledande och sammanfattande kapitel som dels beskriver hur den offentliga sektorn har vuxit över tiden och dels sammanfattar kommande kapitel.
De två nästföljande kapitlena behandlar bidragssystemet. Bidragssystemet är under reform i en rad västländer. Syftet med dessa reformer är att öka bidragstagarens incitament att försörja sig själv genom arbete, något dagens bidragssystem ofta misslyckats med. Det andra kapitlet skattar marginaleffekterna på arbets- och kapitalinkomst i USA. Dessa marginaleffekter mäter hur intäkterna till den offentliga sektorn i form av skatter och minskat bidrag förändras när inkomsten ökar med en enhet. Skattade marginaleffekter är mycket höga för låginkomsttagare, vilket ger stöd åt reformidkarna. En naturlig fråga att ställa sig är således; vad är den optimala bidragsavtrappningstakten (d.v.s. den takt i vilken bidrag går förlorade när inkomsten ökar med en enhet)? Kapitel tre utvecklar en modell som skattar de gränser som bidragsavtrappningstakten bör ligga inom. Jag finner att vissa länder, Sverige tex, har en bidragsavtrappningstakt som ligger över den övre optimala gränsen.
Kapitel fyra skattar sambandet mellan storleken på den offentliga sektorn och ekonomisk tillväxt. Detta görs med hjälp av paneldata och en "fixed-effects" skattningsmodell för 21 OECD länder över tiden 1973-1992. Denna skattningsmetod gör det möjligt att kontrollera för tids- och landsspecifika faktorer. Resultatet från detta kapitel visar att tidigare studier, som använt enklare skattningsmetoder, antagligen lider av statistiska problem och inte är förväntningsriktiga. Jag finner ett starkt negativt samband mellan storleken på den offentliga sektorn och tillväxt när tids- och landsspecifika faktorer finns med, är dessa faktorer ej med försvinner dock detta samband.
Slutligen frågar jag i sista kapitlet huruvida den offentliga sektorn kan fortsätta att växa obehindrat, eller om skattesystemets påverkan på individers incitament slutligen kan leda till en storleksbegränsning av den offentliga sektorn. Den teoretiska övre gränsen till hur stor den offentliga sektorn kan bli beräknas i en Lafferkurvemodell, dessa gränser jämförs sedan med verkliga mått på den offentliga sektorn i 22 OECD länder. Jag finner belägg för hypotesen att minskningen av den offentliga sektorn kan ha berott på begränsningar att driva in skatteintäkter. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/40674
- author
- Hansson, Åsa LU
- supervisor
- opponent
-
- Fil. dr. Andersson, Krister, Industriförbundet
- organization
- publishing date
- 2000
- type
- Thesis
- publication status
- published
- subject
- keywords
- economic systems, economic theory, econometrics, Economics, government size, growth, benefit- reduction rate, Marginal effective tax rates, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
- in
- Lund Economic Studies
- pages
- 182 pages
- publisher
- Department of Economics, Lund University
- defense location
- Crafoordsalen, Holger Crafoords Ekonomicentrum
- defense date
- 2000-09-23 10:15:00
- ISSN
- 0460-0029
- language
- English
- LU publication?
- yes
- id
- 1c2023d4-d2d8-4112-8c9f-3b7ceca3065a (old id 40674)
- date added to LUP
- 2016-04-01 15:23:28
- date last changed
- 2019-05-21 16:59:05
@phdthesis{1c2023d4-d2d8-4112-8c9f-3b7ceca3065a,
abstract = {{The size of government has increased dramatically over the last century. Given the magnitude of government involvement in the economy and the potential influence it has on individuals as well as the economy, studies documenting the effects of government size may offer particularly timely insights. This thesis addresses some of these issues.<br/><br>
<br/><br>
Chapter two and three deal with welfare reform. Welfare systems are currently under criticism worldwide. Many of these reforms aim to provide incentives for welfare recipients to join the work force, something often currently lacking. The second chapter estimates effective marginal tax rates for earned and unearned income over the entire income distribution in the U.S., defined as the change in net payments to government from all taxes and means-tested welfare programs resulting from a unit rise in income. Estimated marginal tax rates are very high for low-income households, which suggests that concerns about the disincentive effects of current welfare system are well founded. Chapter three subsequently develops a model that derives bounds on the optimal benefit-reduction rate, that is the rate at which welfare recipients lose welfare when their income increases by a unit. Specifically, the optimal income taxation model is augmented with the benefit-reduction rate. In some countries, Sweden for example, I find estimated optimal rates that are clearly below actual prevailing rates.<br/><br>
<br/><br>
Chapter four examines the effect of government size on the economy. The relationship between government size and growth is estimated using panel-data from 21 OECD countries over the period 1973-1992. I use a fixed effects estimation model that controls for country- and time-specific fixed factors that may confound simpler estimators. The result is a negative and statistically significant relationship between the size of government and the growth rate. When I omit these fixed factors, however, this relationship disappears suggesting that many earlier studies may have important statistical problems.<br/><br>
<br/><br>
Finally, I ask in the last chapter whether the large government sizes that have evolved are sustainable or whether government sizes have peaked in industrialized countries and are now decreasing due to limits to taxation. Theoretical limits to the government size are computed in a Laffer-style model, and then compared to actual measures of fiscal sizes of government in 22 OECD countries. To make comparisons between numbers derived in the model and actual data meaningful, I introduce a measure of fiscal size that is more consistent with our theoretical tax model. I find support for the hypothesis that declines in government sizes may be a result of limits to taxation.}},
author = {{Hansson, Åsa}},
issn = {{0460-0029}},
keywords = {{economic systems; economic theory; econometrics; Economics; government size; growth; benefit- reduction rate; Marginal effective tax rates; economic policy; Nationalekonomi; ekonometri; ekonomisk teori; ekonomiska system; ekonomisk politik}},
language = {{eng}},
publisher = {{Department of Economics, Lund University}},
school = {{Lund University}},
series = {{Lund Economic Studies}},
title = {{Limits of Tax Policy}},
year = {{2000}},
}