Real-World Economics Review has released a special issue (84-June 2018) on “The Public Economy and a New Public Economics.”  Peter Boettke (George Mason University) has written a nice short overview of “the conversation” to which this contributes, and I would also recommend his recent SEA presidential address on the same topic. Here is the table of contents from the issue:

Reconstructing a public economics: markets, states and societies
Michael A. Bernstein

There is more than one economy
Neva Goodwin

The public economy: understanding government as a producer. A reformation of public economics
June Sekera

Economic benefits of public services
David Hall and Tue Anh Nguyen

Bureaucracy shouldn’t be a dirty word: the role of people-responsive bureaucracy in a robust public economy
Janine R. Wedel

The need for a new public administration
James K. Galbraith

Industrial policy, then and now
Victoria Chick

Putting the nation-state back in: public economics and the global economy
Michael Lind

The entrepreneurial state: socializing both risks and rewards
Mariana Mazzucato

The U.S. Supreme Court ruled yesterday that states can, with limitations, force online retailers to collect sales taxes. Here is a round-up of writings by academics on the subject:

• Sarah Larson (University of Central Florida) has provided to the House of Representatives Judicial Committee an analysis of the two most recent congressional proposals (as of April 2018). These are the “Remote Transactions Parity and Simplification Act” and the “Remote Transactions Parity Act of 2017.” If congress moves next, then this might be how.
• See also, Sarah Larson on what we learn about political ideology from state “Amazon Laws” in Policy Studies Journal with “Simply a Case of Expressive Interests? Evidence from State E-Commerce Sales and Use Tax Reforms“.
• 2012 estimates of state sales tax revenue losses to e-commerce from the UTK trio of Donald Bruce, William Fox, and LeAnn Luna. Here is a March 2017 update of their work by Lorie Jo Brown.
• Bruce, Fox, and Luna also find (National Tax Journal) state tax policy efforts to reclaim the sales tax base from e-commerce has reduced the likelihood of firm nexus establishment within the state.
• Whitney Afonso (University of North Carolina) takes a look at the distribution of revenues across types of local governments (urban, rural, tourism-rich, etc.) in North Carolina after passing an “Amazon Law.”
• John Mikesell’s “Public Finance in the 21st Century” conference paper on “The American Retail Sales Tax: Depression’s Child in the New Economy of the 21st Century.” Mikesell (Indiana University) highlights a number of technological and new economy challenges to administering the sales tax and how their Depression-era legacy remains influential to these problems.
• See also Mikesell’s “Remote Vendors and American Sales and Use Taxation: The Balance between Fixing the Problem and Fixing the Tax” in the National Tax Journal (2000). Rather than being dated, parts of this look like it might be due for a resurgence of interest and relevance. In addition to being a good primer on the original problem of physical nexus, it also highlights structural features of the sales tax that exacerbated the problems. In particular, he makes the case that local, not state, use tax is a significant source of administrative cost that provides really no revenue, so suspending it might go a long way towards improved efficiency.
• A clever 2014 American Economic Review paper by Einav et al. shows that the e-Bay practice of revealing the tax after the consumer selects “buy” induces substitution to out-of-state sellers. This older paper by Austan Goolsbee had found similar effects in the Quarterly Journal of Economics.
• Presumably, the difference between sales and use taxes in their compliance rates have implications for the overall equilibrium patterns of private and public economies. David Agrawal and David Wildasin (UKY) have a theoretical model in “Sales Taxation, Spatial Agglomeration, and the Internet” raising the profile of this question. See also Agrawal’s “Internet as a Tax Haven? The Effect of the Internet on Tax Competition” which shows that internet penetration in large municipalities have lowered local sales taxes by comparing high-tax versus low-tax sides of state borders.

This coming weekend (Friday June 22 to Saturday June 23), the Ross School of Business at the University of Michigan is hosting a conference in celebration of the 30th anniversary of the Office of Tax Policy Research. The conference website has links to view via streaming and the agenda. Below is an abridged version of the agenda:

June 22, 2018

10:30 a.m. — 12:15 p.m. — Roundtable on Global Tax Policy Issues

Moderator: Thomas Neubig, Tax Sage Network
Panelists
Alan Auerbach, University of California, Berkeley
Richard Bird, University of Toronto, Canada
Michael Devereux, Oxford University
James Poterba, Massachusetts Institute of Technology
Harvey Rosen, Princeton University

1:30 p.m. — 3:00 p.m. — Roundtable on Promising New Directions in Tax Research

Moderator: Roger Gordon, University of California, San Diego (TBC)
Panelists
Raj Chetty, Stanford University
Henrik Kleven, Princeton University
Wojciech Kopczuk, Columbia University
Emmanuel Saez, University of California, Berkeley

3:30 p.m. — 5:00 p.m. — Roundtable on What It Would Be Good to Know By 2048

Moderator: Dan Silverman, Arizona State University
Panelists
Johannes Spinnewijn, London School of Economics
Stefanie Stantcheva, Harvard University
Gabriel Zucman, University of California, Berkeley
Eric Zwick, University of Chicago

June 23, 2018 

9:00 – 10:00 a.m. Workshop on New Directions in Tax Theory

Chair:  Nathaniel Hendren, Harvard University

“Sales Taxation, Spatial Agglomeration and the Internet”
David R. Agrawal and David E. Wildasin, University of Kentucky

“Generalized Compensation Principle”
Aleh Tsyvinski, Yale University; and  Nicolas Werquin, University of Toulouse

10:30 – 12:30 p.m. Workshop on New Empirical Findings in Taxation

Chair: John Friedman, Brown University

“Intertemporal Income Shifting: Evidence from Small Business Owners”
Helen Miller, Institute for Fiscal Studies; Thomas Pope and Kate Smith, Institute for Fiscal Studies and University College London

“Tax Simplicity and Heterogeneous Learning”
Philippe Aghion, College de France, Ufuk Akeigit, University of Chicago, Matthieu Lequien, Banque de France, and Stefanie Stantcheva, Harvard University

“Strategic Subsidiary Disclosure”
Scott Dyreng, Duke University, Jeffrey L. Hoopes, University of North Carolina, Chapel Hill, Patrick Langetieg, Internal Revenue Service, and Jaron Wilde, University of Iowa

“Taxpayer Responsiveness and Statutory Incidence: Evidence from Irish Social Security Notches”
Enda Hargaden, University of Tennessee, and Barra Roantree, Institute for Fiscal Studies and University College London

12:30 – 1:30 p.m. Lunch; Speaker: Douglas Shackelford, Dean, Kenan-Flagler Business School, University of North Carolina, Chapel Hill

1:30 – 3:00 p.m. Workshop on New Research in Tax Compliance and Enforcement

Chair: Julie Cullen, University of California, San Diego

“Tax Evasion and Inequality”
Annette Alstadsæter, Norwegian University of Life Sciences; Niels Johannesen, University of Copenhagen; and Gabriel Zucman, University of California, Berkeley

“Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts”
Niels Johannesen, University of Copenhagen; Patrick Langetieg, Internal Revenue Service; Daniel Reck, London School of Economics; Max Risch, University of Michigan; and Joel Slemrod, University of Michigan

“Reducing Evasion Through Self-Reporting: Evidence from Charitable Contributions”
Alisa Tazhitdinova, McMaster University

3:30 – 5:00 p.m. Workshop on New Tax Research in Developing Countries

Chair: Monica Singhal, University of California, Davis

“Firms Response to Tax Enforcement through Audits”
Claudio A. Agostini, Universidad Adolfo Ibañez; Juan Pablo Atal, University of Pennsylvania; and Andrea Repetto, Universidad Adolfo Ibañez

“Information Frictions and Learning Dynamics: Evidence from Tax Avoidance in Ecuador”
Albrecht Bohne, University of Mannheim and Jan Sebastian Nimczik, Humboldt University
“Casting a Wider Tax Net: Experimental Evidence from Costa Rica”

Anne Brockmeyer and Marco Hernandez, The World Bank; Stewart Kettle, Behavioral Insights Team; and Spencer Smith, University of Oxford

The Early View release of Review of Policy Research includes the article “Do Disasters Lead to Learning? Financial Policy Change in Local Government” by Deserai Crow (UC-Denver), Elizabeth Albright (Duke), Todd Ely (UC-Denver), Elizabeth Koebele (UN-Reno), and Lydia Lawhon (UC-Bolder). The paper is a good example of comparative case study research, with a mix of qualitative and quantitative evidence from Colorado communities after a catastrophic flood episode in 2013. The better access you have to adequate and flexible funds, the more likely you are able to prioritize important recovery projects in an efficient way, so this matters a lot in both the short and long-run recovery phase of the disaster effort.

One of the main findings is that local governments learned how unwieldy FEMA reimbursements are [page 15]:

Indeed, for communities with significant flood damage, the Town of Estes Park’s description of its post-flood financial challenges typifies the breadth of the flood’s effects in areas such as […] dealing with the uncertainty in reimbursements.

[…] The Town continues to face challenges managing its fund balances and cash flow because agency reimbursements for flood repair are unpredictable in both amount and timeliness.

[…] As an illustration, FEMA data indicate that at least 18 different federal agencies or programs were involved in Colorado flood recovery funding after the 2013 floods. The complexities and delays associated with navigating these various agencies and programs can be substantial for local governments…

So what types of policy changes were made as a result of this experience? Page 21:

Reserve policies were changed in some of the local governments following the flood. This may potentially indicate that the community learned about the importance of having large, flexible reserves during a disaster, or at least recognized the barriers associated with limited reserves described above. The City of Boulder, most prominently, increased the targeted reserve level following the floods from 10% to 16% of general fund expenditures and created temporary reserve requirements to address the uncertainty of reimbursements.

Of course, because it is a qualitative case study investigation, the authors do not make any specific claims on things like what and how much changes occurred in response to the uncertainties of reimbursement, specifically as opposed to maybe revised flood expectations.

Generally, I would like to see more research on the question of how much government inefficiency is caused by regulations imposed by other governments (intergovernmental regulation or government-to-government regulation). Recall the criticism by state and local officials of the federal bureaucracy in the BP oil spill that allegedly distorted or delayed their responses. (You do get papers, however, on market value consequences for the private sector.) You can imagine a counterfactual business-school version of the Crow et al. paper where the findings are interpreted as a kind of deadweight loss due to federal regulatory inefficiency. Of course, being local governments, there aren’t profit signals that easily lend in that direction. Nevertheless, the changes documented by Crow et al. (e.g., change in reserves, the new departments, hiring staff, etc.) is a step in that direction.

If you find intergovernmental regulation interesting, I recommend David Konisky and Manuel Teodoro’s “When Governments Regulate Governments” in the American Journal of Political Science (2016).

Contemporary Economic Policy‘s has a special issue on aging for July 2018, which as one might expect has several articles on public finance. The introduction is written by guest editor Maureen Pirog, and the full issue TOC is here. Some selected articles of interest:

“Longevity, Working Lives, and Public Finances.” By Jukka Lassila and Tarmo Valkonen.

“Lifetime Taxpayer Contributions and Benefits of Medicare and Social Security.” By Jing Guo and Marilyn Moon.

“The 80% Pension Funding Target, High Assumed Returns, and Generational Inequity.” By Robert Costrell.

“Sweat the Small Stuff: Strategic Selection of Pension Policies Used to Defer Required Contributions.” By Jeffrey Diebold, Vincent Reitano, and Bruce McDonald.

“Some Notes on the Redistribution Inherent in the U.S. Public Pension System.” By Sergio Nistico and Mirko Bevilacqua.

Some recent publications and working papers that have otherwise gone undiscussed on this blog:

“Do Disasters Lead to Learning? Financial Policy Change in Local Government” by Deserai Crow, Elizabeth Albright, Todd Ely, Elizabeth Koebele, and Lydia Lawhon. Review of Policy Research.

“How does inequality aversion affect inequality and redistribution?” By Matthew Murray, Langchuan Peng, and Rudy Santore. Journal of Economic Inequality.

“Jurisdictional Overlap and the Size of the Local Public Workforce.” By Christopher B. Goodman. State and Local Government Review.

“Fiscal Succession: An Analysis of Special Assessment Financing in California.” By Matthew McCubbins and Ellen Seljan. Urban Affairs Review.

“Is There an Optimal Size for Local Governments? A Spatial Panel Data Model Approach.” By Miriam Hortas-Rico and Vicente Rios. GEN Working Paper.

“Land Value Taxation in Vancouver: Rent-Seeking and the Tax Revolt.” By Christopher England. The American Journal of Economics and Sociology.

“Power to the People? The Initiative Process and Fiscal Discipline in City Governments.” By Benedict Jimenez. Urban Affairs Review.

“Does Fiscal Decentralization Affect Infrastructure Quality? An Examination of U.S. States.” By Monica Escaleras and Peter T. Calcagno. Contemporary Economic Policy.

“Does CAP Spending Reflect Taxpayer Preferences? An Analysis of Expenditures for Public Goods and Income Redistribution in Relation to Preference Indicators.” By Felix Schlapfer and Ivo Baur. Conference Paper.

In next month’s Expert Systems with Applications, Nikolaos Goumagias (Northumbria University), Dimitrios Hristu-Varsakelis (University of Macedonia), and Yannis Assael (University of Oxford) have “Using Deep Q-Learning to Understand the Tax Evasion Behavior of Risk-Averse Firms.”

Deep Q(uality)-Learning is a form of artificial intelligence, where the AI agent lacks a model of the environment they are in, but uses machine learning to discover a optimal policy from trying to collect rewards from different actions. Or so I gather from this site showing a Deep-Q agent learn to play Doom. What they do in the paper is take a sample of Greek firms and attempt to figure out their degree of relative risk aversion in the Greek system. This is not a program designed to detect tax evasion, but rather evaluate tax policy in terms of tax revenue and evasion when confronted with new tax policies. You can think of this also as differing from similar normative public finance policy studies where utility and profit functions of agents are first defined and parameterized by the researcher. Here is the abstract from the Goumagias et al. paper:

Designing tax policies that are effective in curbing tax evasion and maximize state revenues requires a rigorous understanding of taxpayer behavior. This work explores the problem of determining the strategy a self-interested, risk-averse tax entity is expected to follow, as it “navigates” – in the context of a Markov Decision Process – a government-controlled tax environment that includes random audits, penalties and occasional tax amnesties. Although simplified versions of this problem have been previously explored, the mere assumption of risk-aversion (as opposed to risk-neutrality) raises the complexity of finding the optimal policy well beyond the reach of analytical techniques. Here, we obtain approximate solutions via a combination of Q-learning and recent advances in Deep Reinforcement Learning. By doing so, we (i) determine the tax evasion behavior expected of the taxpayer entity, (ii) calculate the degree of risk aversion of the “average” entity given empirical estimates of tax evasion, and (iii) evaluate sample tax policies, in terms of expected revenues. Our model can be useful as a testbed for “in-vitro” testing of tax policies, while our results lead to various policy recommendations.

I was also interested to discover from this that tax evasion is a popular applied subject for AI work, which makes sense considering it is a natural candidate for policy relevance. Here are some pieces I turned up, by title:

–Data Mining Application Issues in Fraudulent Tax Declaration Detection
–Tactical Exploration of Tax Compliance Decisions in Multi-Agent Based Simulation
–Tax non-compliance detection using co-evolution of tax evasion risk and audit likelihood
–Tax Evasion Behavior using Finite Automata: Experiments in Chili and Italy
–Detecting Corporate Tax Evasion Using a Hybrid Intelligent System: A Case Study of Iran
–The Computational Rules Extractor in the Detection of Tax Evasion
–Detecting Tax Evasion: A co-evolutionary approach

The July issue of Public Finance Review has been published. Below are the contents:

“Effects of Higher EITC Payments on Children’s Health, Quality of Home Environment, and Nonognitive Skills.” By Susan Averett and Yang Wang.

“Time to Adoption of Local Option Sales Taxes: An Examination of Texas Municipalities.” By Whitney Afonso.

“Retirement Reversals and Health Insurance: The Potential Impact of the Affordable Care Act.” By Joshua Congdon-Hohman.

“Tax Incentives and Noncompliance: Evidence from Swedish Micro Data.” By Annette Alstadsaeter and Martin Jacob.

“The Effect of Fiscal Illusion on Public Sector Financial Management: Evidence from Local Government Property Assessment.” By Justin M. Ross and Sian Mughan

“The Politics of Checkbook Federalism: Can Electoral Considerations Affect Federal-Provincial Transfers?” By Marcelin Joanis

“The Effect of Oil Revenue Funds on Social Welfare.” By Dina Azhgaliyeva

A little over a month ago, Georgia State’s Andrew Young School of Policy Studies hosted a conference on “Public Finance and the New Economy.” I was fortunate enough to attend, and can attest that it was an outstanding and stimulating event. The full conference agenda can be found here, and about nine of the dozen or so discussion papers can be found at the conference website. Here the available papers, noting that most of them indicate that they are circulated for discussion and feedback only, and should not yet be cited or quoted without permission:

New Roles for the Property Tax

LOSTs in Translation: Yardstick Competition among Florida Counties
Author: Sarah Larson, University of Central Florida; Bruce McDonald III, North Carolina State University

How Does Village Dissolution Affect Property Values?
Author: Pengju Zhang, Rutgers University

Debt and Finance

State Tax Cuts and Debt Market Outcomes: Lessons from the Kansas Tax Cut Experiment
Authors: Rahul Pathak, Baruch College, CUNY; Komla Dzigbede, SUNY at Binghamton

Impact of Intergovernmental Revenue on Capital Spending: A Test of the Flypaper Effect
Author: Bernard Boadu, University of North Texas

Expenditures: Direct and Indirect

Preferences and Place: Why Preferences for Funding Education Vary Across the Urban-Rural Divide
Author: Kattalina Berriochoa, University of Massachusetts, Boston

Do Local Governments Represent Voter Preferences? Evidence from the Affordable Care Act on Local Government Support for Hospitals
Author: Victoria Perez, Justin Ross and Kosali Simon, Indiana University

New Roles for the Property Tax

Driverless Cars, Virtual Offices and Their Effects on Local Government Property Tax Revenues
Authors: Nicholas Warner and Peter Bluestone, Georgia State University

The American Retail Sales Tax: Depression’s Child in the New Economy of the 21st Century
Author: John Mikesell, Indiana University

Richard Bird (University of Toronto) has a recent working paper on the question. The obvious answer is “no” and Professor Bird does not disagree. Nevertheless, he sees possibilities in existing international organizations that might provide the foundation for solving a coordination problems that might aid in dealing with a variety of cross-border flows that represent at least a large part of the problem.  Here is an excerpt I liked (p. 28, citations and footnotes omitted):

The existing international tax system is the product of pragmatic attempts beginning with the League of Nations almost a century ago to accommodate the varied ways in which commercial activities take place by modifying tax laws developed essentially for domestic purposes. Over time, a loose confederation of some key developed countries concerned with international tax issues emerged. The recent BEPS (Base Erosion Profit Shifting) discussions under the auspices of the OECD expanded this coalition to include some significant developing countries. Countries increasingly share financial and tax information through a plethora of Tax Information Exchange Agreements (TIEAs) and bilateral tax treaties, largely aiming at limiting the possibility that income can be hidden from interested tax authorities […] Those who want clean solutions to what they see as obvious problems – whether their ultimate concern is to ensure all international and domestic operations are taxed similarly or to redistribute the world’s wealth – are unlikely to view this messy and incomplete process or its (at best) half-baked result as satisfactory. Some degree of duplication, coordination costs, and at best only partial success almost inevitably results from decentralized decision-making structures, though perhaps in a world of conflicting interests and less than full information the outcome may be better – or at least more acceptable — than those of a more centralized structure.