Public Spending and Taxation

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L. Blow and I. Preston, 2002, "Deadweight Loss and Taxation of Unearned Income: Evidence from Tax Records of the UK Self-Employed " Institute for Fiscal Studies Working Paper W02/15.

Responses to changes in marginal income tax rates can be more complex than a simple adjustment in hours worked. Given this, a more inclusive way to assess the deadweight costs of taxes on labour income is to examine the effect of changes in the marginal tax rate on taxable income rather than on labour supply. In this paper we apply a grouping estimator to data from the UK Survey of Personal Incomes so assess the magnitude of taxable income responses of the self employed. Our results point to a modest degree of deadweight loss.

J. Hall and I. Preston, 2000, "Tax Price Effects on Attitudes to Hypothecated Tax Increases" , Journal of Public Economics 75, 417-438.

Perceptions of private benefits from hypothecated tax increases may be more or less correlated with income both because individuals with different incomes have different interests in expanding public services and because they anticipate bearing different shares of the implied tax burden. We report on analysis of cross-sectional data from the United Kingdom in which respondents have been randomly allocated to different but precisely specified tax instruments in a way which should allow separation of the two effects. We estimate perceptions of tax costs and attitudes to tax increases jointly, finding little evidence of any effect from tax prices on perceptions of private benefits from increased public spending. This renders implausible the suggestion that the weak income correlations in this data might be arising from offsetting income and price effects. Nonetheless the special features of the data allow us to show perceptions of tax increases are correlated with both observed and unobserved influences on demand in a way which has the potential to generate serious biases in demand estimates if ignored.

L. Brook, J. Hall and I. Preston, 1998, "What Drives Support for Higher Public Spending?" in: P. F. Taylor-Gooby, ed, "Choice and Public Policy (London: Macmillan)

This paper examines the role of individual and household characteristics in explaining patterns of support for higher public spending on seven of the most important public spending programmes including health, education, the police and defence. Different groups in the population, such as the elderly, those who are highly educated, and those who support particular political parties, tend to support distinctive types of spending. There is some evidence that use of private alternatives to public services reduces support for higher state spending in the fields of health care and transport, although no evidence is found that this is true for education.

T. Besley, I. Preston and M. Ridge, 1997, "Fiscal Anarchy in the UK: Modelling Poll Tax Noncompliance," Journal of Public Economics 64, 137-152.

The UK's experience with the poll tax reminds us that even in an economy with a relatively well developed detection and legal system, one cannot take tax compliance for granted. The experience of the poll tax provides a unique opportunity to study many dimensions of tax compliance. We model nonpayment rates in a short panel of data on the English local authorities. The transparent observability of liabilities makes reliable measurement of rates of nonpayment possible. Moreover, these rates rose to unprecedented levels as well as exhibiting considerable variation across authorities. This, together with the variation in local taxes both between districts and over time, creates an ideal opportunity for empirical investigation. Our empirical specification allows us to investigate the determinants of compliance as a function of authority characteristics using socioeconomic and other geographical data. Moreover, the analysis takes seriously the possibility of neighbourhood influences across authority boundaries. Our empirical results confirm the idea that higher taxes lead to larger nonpayment problems and that attempts to enforce compliance can have a positive effect. Political variables are also found to be associated with nonpayment rates. Evidence of influence from neighbouring jurisdictions is also found.

T. Besley, J. Hall and I. Preston, 1996,"The Demand for Private Health Insurance: Do Waiting Lists Matter?" Journal of Public Economics, 72, 155-181.

In spite of government dominance in financing health care in many countries, the private health care sector remains important. This is true even though most public provision is heavily subsidized, and in many cases free, at source. Britain's National Health Service fails to drive out the private sector because it suffers from certain inflexibilities. Here, we show that longer waiting lists for NHS treatment are associated with greater purchases of private health insurance.

I. Preston and M. Ridge, 1995, "Demand for Local Public Spending: Evidence from the British Social Attitudes Survey,"Economic Journal 105, 644-660.

The British Social Attitudes Survey is a UK wide survey that provides a rich source of information on individuals attitudes to a variety of topics including locally provided services. In this paper we seek to model answers to questions on attitudes to local authority spending which invite the expression of a private demand for local public spending. A picture emerges of locally provided public goods as imperfectly congested public goods, with a price elastic and probably income inelastic demand. The view that central government grants may induce voter confusion over tax prices of public services also finds support.

Ian Preston
Department of Economics
University College London
Gower Street, London WC1E 6BT