Topics in public finance: social security and taxation

Summary The field of public finance focuses on the spending and taxing activities of governments and their influence on the allocation of resources and distribution of income. This work covers in three parts different topics related to public finance which are currently widely discussed in media and politics. The first two parts deal with issues on social security, which is in general one of the biggest spending shares of governments. The third part looks at the main income source of governments by analyzing the perceived value of tax competition. Part one deals with the current problem of increased early retirement by focusing on Switzerland as a special case. Early retirement is predominantly considered to be the result of incentives set by social security and the tax system. But the Swiss example demonstrates that the incidence of early retirement has dramatically increased even in the absence of institutional changes. We argue that the wealth effect also plays an important role in the retirement decision for middle and high income earners. An actuarially fair, but mandatory funded system with a relatively high replacement rate may thus contribute to a low labor market participation rate of elderly workers. We provide evidence using a unique dataset on individual retirement decisions in Swiss pension funds, allowing us to perfectly control for pension scheme details. Our findings suggest that affordability is a key determinant in the retirement decisions. The higher the accumulated pension capital, the earlier men, and to a smaller extent women, tend to leave the workforce. The fact that early retirement has become much more prevalent in the last 15 years is a further indicator of the importance of a wealth effect, as the maturing of the Swiss mandatory funded pension system over that period has led to an increase in the effective replacement rates for middle and high income earners. Part two covers the theoretical side of social security. Theories analyzing optimal social security benefits provide important qualitative results, by mainly using one general type of an economy. Economies are however very diverse concerning numerous aspects, one of the most important being the wealth level. This can lead to significant quantitative benefit differences that imply differences in replacement rates and levels of labor supply. We focus on several aspects related to this fact. In a within cohort social security model, we introduce disability insurance with an imperfect screening mechanism. We then vary the wealth level of the model economy and analyze how the optimal social security benefit structure or equivalently, the optimal replacement rates, changes depending on the wealth level of the economy, and if the introduction of disability insurance into a social security system is preferable for all economies. Second, the screening mechanism of disability insurance and the threshold level at which people are defined as disabled can differ. For economies with different wealth levels, we determine for different thresholds the screening level that maximizes social welfare. Finally, part three turns to the income of governments, by adding an element to the controversy on tax competition versus tax harmonization.2 Inter-jurisdictional tax competition can generate at least two potential benefits or costs: On a public level, tax competition may result in a lower or higher efficiency in the production of public services. But there is also a more private benefit in the form of an option for individuals to move to a community with a lower tax rate in the future. To explore the value citizens attach to tax competition we analyze a unique popular vote for a complete tax harmonization between communities in the third largest Swiss canton, Vaud. Although a majority of voters would have seemingly benefited from replacing the current tax rate by a revenue-neutral average tax rate, the proposal was rejected by a large margin. Our estimates suggest that the estimated combined perceived benefit from tax competition is in the range of 10%.

The Rise of The Swiss Tax Haven in the Interwar Period: An International Comparison

The history of tax havens is still little known for the decades before World War II. Up to now the studies that have focused on the 1920s and 30s have presented either a very general perspective on the development of tax havens or a narrow national point of view. Based on unpublished historical archives of four countries, this paper offers therefore a new comparative look on international tax competition during this period in order to answer the following question: was the Swiss case - already considered as a quintessential tax haven at the time - specific in comparison to other banking centres? This research has two results. On the one hand, the 1920s and 30s appear as something of a golden age of opportunity for avoiding taxation through the relocation of assets. Actually, most of the financial centres granted consistent tax benefits for imported capital, while the extremely limited degree of international cooperation and the usual guarantee of banking secrecy in European countries prevented the taxation of exported assets. On the other hand, within this general balance sheet, the fiscal strategies of a tax haven like Switzerland differed from those of a great financial power like Great Britain. Whereas the Swiss administration readily placed itself at the service of the bankers, the British policy was more balanced between the contradictory interests of the Board of Inland Revenue, the Treasury and the English business circles.

CREB-2, a cellular CRE-dependent transcription repressor, functions in association with Tax as an activator of the human T-cell leukemia virus type 1 promoter.

The Tax protein of the human T-cell leukemia virus type 1 (HTLV-1) has been implicated in human T-cell immortalization. The primary function of Tax is to transcriptionally activate the HTLV-1 promoter, but Tax is also known to stimulate expression of cellular genes. It has been reported to associate with several transcription factors, as well as proteins not involved in transcription. To better characterize potential cellular targets of Tax present in infected cells, a Saccharomyces cerevisiae two-hybrid screening was performed with a cDNA library constructed from the HTLV-1-infected MT2 cell line. From this study, we found 158 positive clones representing seven different cDNAs. We focused our attention on the cDNA encoding the transcription factor CREB-2. CREB-2 is an unconventional member of the ATF/CREB family in that it lacks a protein kinase A (PKA) phosphorylation site and has been reported to negatively regulate transcription from the cyclic AMP response element of the human enkephalin promoter. In this study, we demonstrate that CREB-2 cooperates with Tax to enhance viral transcription and that its basic-leucine zipper C-terminal domain is required for both in vitro and in vivo interactions with Tax. Our results confirm that the activation of the HTLV-1 promoter through Tax and factors of the ATF/CREB family is PKA independent.

Severe traumatic brain injury in a high-income country: an epidemiological study.

This adult cohort determined the incidence and patients' short-term outcomes of severe traumatic brain injury (sTBI) in Switzerland and age-related differences. A prospective cohort study with a follow-up at 14 days was performed. Patients ≥16 years of age sustaining sTBI and admitted to 1 of 11 trauma centers were included. sTBI was defined by an Abbreviated Injury Scale of the head (HAIS) score >3. The centers participated from 6 months to 3 years. The results are presented as percentages, medians, and interquartile ranges (IQRs). Subgroup analyses were performed for patients ≤65 years (younger) and >65 (elderly). sTBI was observed in 921 patients (median age, 55 years; IQR, 33-71); 683 (74.2%) were male. Females were older (median age, 67 years; IQR, 42-80) than males (52; IQR, 31-67; p<0.00001). The estimated incidence was 10.58 per 100,000 inhabitants per year. Blunt trauma was observed in 879 patients (95.4%) and multiple trauma in 283 (30.7%). Median Glasgow Coma Score (GCS) on the scene was 9 (IQR 4-14; 8 in younger, 12 in elderly) and in emergency departments 5 (IQR, 3-14; 3 in younger, 8 in elderly). Trauma mechanisms included the following: 484 patients with falls (52.6%; younger, 242 patients [50.0%]; elderly, 242 [50.0%]), 291 with road traffic accidents (31.6%; younger, 237 patients [81.4%]; elderly, 54 [18.6%]), and 146 with others (15.8%). Mortality was 30.2% (24.5% in younger, 40.9% in elderly). Median GCS at 14 days was 15 (IQR, 14-15) without differences among subgroups. Estimated incidence of sTBI in Switzerland was low, age was high, and mortality considerable. The elderly had higher initial GCS and a higher death rate, but high GCS at 14 days.

Do Nasty and Pleasant Surprises Regarding Tax Revenue Explain Spending Drifts ? : The Case of the Swiss Cantons

This article aims to explain the difference between the expenditure reported in governmental end-of-the-year budgets and the amounts previously forecasted in the approved beginning-of-the-year budgets. We measure how political, financial, and institutional variables affect this spending drift. We focus on two much-debated factors, namely, tax revenue budgeting errors and the stringency of fiscal rules. Our econometric approach uses a panel based on the 26 Swiss cantons covering the period of 1980 to 2011. Results suggest that stringent fiscal rules discourage budget overruns, whereas underestimating tax revenue-i.e., a budgetary "pleasant surprise"-offers the opportunity for some overspending.

Bureaucracy and the flypaper effect : Evidence from intercommunal fiscal equalisation in the canton of Vaud

Unlike classical theoretical expectations, our empirical study shows that financial transfers to decentralised governments increase local public expenditures much more than would be triggered by an equivalent rise in local income. This empirical evidence of the presence of a flypaper effect is achieved using panel data from 375 municipalities located in the Swiss canton of Vaud covering the period 1994 to 2005. During that time there was a major change in the financial equalisation scheme. Furthermore, our study confirms the analysis of the public choice theory: the effect depends partly on the degree of complexity of the municipal bureaucracy. These results show that local bureaucratic behaviour may impede the effectiveness of a financial equalisation scheme that aims to reduce disparities in local tax.

Distribution of hospital admissions in a middle-income country of the African region

Introduction: Few studies have reported the distribution of all hospital admissions at the entire country level in low and middle-income countries (LMICs). We examined this question in Seychelles, a rapidly developing small island state in the Africa region, in which access to health care is provided free of charge to all inhabitants through a national health system and all hospital admissions are routinely registered. Methods: Based on all admissions to all hospitals in Seychelles in 2005-2008, we calculated the distribution of hospital admissions, age at admission, length of stay and bed occupancy (i.e. cumulated number of patients * number of days spent in all hospitals) according to both hospital departments and broad causes of diseases (using codes of the ICD-10 classification of diseases). Results: Bed occupancy was largest in the surgical wards (36.7% of all days spent in all hospitals), followed by the medical wards (24.3%), gynecology/obstetrics wards (18.4%), pediatric wards (11.2%), and psychiatric wards (7.2%). According to broad causes of diseases/conditions, bed occupancy was highest for obstetrics/gynecology conditions (19.9% of all days spent at hospital), mental diseases (8.6%), cardiovascular diseases (8.1%), upper aerodigestive/pulmonary diseases (8%), infectious/parasitic diseases (8%), gastrointestinal diseases (7.2%), and urogenital diseases (6.7%). Adjusted to 100'000 population, 153 hospital beds are needed every day, including 31 for obstetrics/gynecologic conditions, 13 for mental diseases, 12 for cardiovascular diseases, 12 for upper aerodigestive diseases, 12 for infectious/parasitic diseases, and 11 for gastrointestinal diseases. Conclusion: Our findings give a good indication of the overall distribution of admissions according to both hospital departments and broad causes of diseases in a middle-income country. These findings provide important information for health care planning at the national level

Lessons learned from developing a national NCD programme in low- and middle-income countries (Seychelles)

This paper identifies selected issues and lessons learned from the implementation of a national program of prevention and control of non-communicable diseases (NCD) during the past 20 years in the Seychelles, a small island state in the African region. As early as in 1989, population-based surveys demonstrated high levels of several cardiovascular risk factors, which prompted an organized response by the government. The early creation of a NCD unit within the Ministry of Health, coupled with cooperation with international partners, enabled incremental capacity building and coherent development of NCD programs and policy. Information campaigns and screening for hypertension and diabetes in work/public places raised awareness and rallied increasingly broad awareness and support to NCD prevention and control. A variety of interventions were organized for tobacco control and comprehensive tobacco control legislation was enacted in 2009 (including total bans on tobacco advertising and on smoking in all enclosed public and work places). A recent School Nutrition Policy prohibits the sale of soft drinks in schools. At primary health care level, guidelines were developed for the management of hypertension and diabetes (these conditions are managed in all health centers within a national health system); regular interactive education sessions were organized for groups of high risk patients ("heart health club"); and specialized "NCD nurses" were trained. Decreasing prevalence of smoking is evidence of success, but the raising "diabesity epidemic" calls for strengthened health care to high-risk patients and broader multisectoral policy to mould an environment conducive to healthy behaviors. Key components of NCD prevention and control in Seychelles include effective surveillance mechanisms supplemented by focused research; generating broad interest and consensus on the need for prevention and control of NCD; mobilizing leadership and commitment at all levels; involving local and international expertise; building on existing efforts; and seeking integrated, multi-disciplinary and multisectoral approaches.

Healthy, wealthy, wise, and happy? An exploratory analysis of the interplay between aging and subjective well-being in low and middle income countries

In this paper, we address the relationship between age and several dimension of subjective well-being. Whilst literature generally finds a U-shaped age-profile in subjective well-being, this age-pattern might only hold after controlling for objective life circumstances. The observed U-shaped age-profile might further not generalize to other dimensions of well-being and might vary across countries and cultures. Our study examines the relationship between age and several dimensions of well-being as well as the effect of objective life circumstances using the WHO Study on Global AGEing and Adult Health (SAGE). Our results suggest a decreasing age profile in the raw data associated with evaluative well-being, while experienced well-being shows a rather flat or slightly increasing pattern. However, age per se is not a cause of a decline in evaluative well-being. The negative age-profile in evaluative well-being is mainly explained by changes in life circumstances associated with aging. Controlling for socio-demographic factors, we find higher levels of well-being for older persons relative to their middle-aged counterparts. In contrast, we find that changes in life circumstances have a much smaller effect on experienced well-being.

Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?

Recent theoretical work in economic geography has shown that agglomeration forces can mitigate 'race-to-the-bottom' tax competition, by partly or fully offsetting firms' sensitivity to tax differentials. We test this proposition using data on firm births across Swiss municipalities. We find that corporate taxes deter firm births less in more spatially concentrated sectors. Firms in sectors with an agglomeration intensity in the top quintile are less than half as responsive to differences in corporate tax burdens as firms in sectors with an agglomeration intensity in the bottom quintile. Hence, agglomeration economies do appear to attenuate the impact of tax differentials on firms' location choices.

Bullying among adolescents in a sub-Saharan middle-income setting.

PURPOSE: This study explored factors associated with self-reported bullying among adolescents in a sub-Saharan country. METHODS: A cross-sectional sample of adolescents (n = 1,427) in the Seychelles was drawn from the Global School-based Student Health Survey. Bullied adolescents were compared with non-bullied adolescents with respect to several sociodemographic factors. Bivariate and multivariate analyses were performed. RESULTS: Within a 30 day period, 38.8% of adolescents reported being bullied. Bullied youths were more likely to be depressed (adjusted odds ratio [aOR] = 1.63; confidence intervals [CI] = 1.27-1.07) and socially deprived (aOR = 1.85; CI = 1.30-2.61). Being older (aOR = .83; CI = .77-.90) and having close friends (aOR = .53; CI = .31-.91) were protective factors. CONCLUSIONS: The prevalence of bullying in the Seychelles is high, and social correlates are similar to those in industrialized settings. More research is needed to examine bullying patterns outside the school environment.