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on Public Finance |
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Issue of 2005‒08‒13
thirteen papers chosen by |
| By: | Ronald G. Cummings (Andrew Young School of Policy Studies); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Michael McKee; Benno Torgler (World Bank) |
| Abstract: | There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.” |
| Keywords: | Behavior, tax morale, tax compliance |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0516&r=pub |
| By: | Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Mark Rider (Andrew Young School of Policy Studies); Lucy F. Ackert (Kennesaw State University); Ann Gillette (Federal Reserve Bank of Atlanta) |
| Abstract: | There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.” |
| Keywords: | Equity, Social preferences, Inequity aversion, Optimal taxation |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0517&r=pub |
| By: | Johannes Becker; Clemens Fuest |
| Abstract: | A widespread objection to the introduction of consumption tax systems claims that this would lead to high tax revenue losses. This paper investigates the revenue effects of a consumption tax reform in Germany. Our results suggest that the revenue losses would be surprisingly low. We find a maximum revenue loss of 1.6 percent of annual GDP. In some years, we even find a tax revenue gain. This implies that the current tax system collects little revenue from taxing the normal return to capital. Based on these results, we calculate a macroeconomic measure of the effective tax rate on capital income. |
| Keywords: | cash flow tax, tax revenue effects, effective taxation of capital income |
| JEL: | H21 H25 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1489&r=pub |
| By: | Martín Gonzalez-Eiras; Dirk Niepelt |
| Abstract: | This paper analyzes the sustainability of intergenerational transfers in politico-economic equilibrium. Embedding electoral competition for the votes of old and young households in the standard Diamond (1965) OLG model, we find that intergenerational transfers naturally arise in a Markov perfect equilibrium, even in the absence of altruism, commitment, or trigger strategies. Not internalizing the negative effects of transfers for future generations, the political process partially resolves the distributive conflict between old and young voters by shifting some of the cost of social security to the unborn. As a consequence, transfers in politico-economic equilibrium are higher than what is socially optimal. Standard functional form assumptions yield closed-form solutions for the politico-economic equilibrium as well as the equilibrium supported by the Ramsey policy. The model predicts population ageing to lead to larger social security systems, but eventually lower benefits per retiree. Under realistic parameter values, it predicts a social-security tax rate close to the actual one, but higher than the Ramsey tax rate. Closed-form solutions for the case with endogenous labor supply, tax distortions, and multiple policy instruments prove the results to be robust. |
| Keywords: | social security, intergenerational transfers, probabilistic voting, Markov perfect equilibrium, saving, labor supply |
| JEL: | E62 H55 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1494&r=pub |
| By: | Alfons Weichenrieder |
| Abstract: | Tax rates on corporate income have considerably come down in the process of tax competition and further pressures are evident. Against this background, the paper discusses possible benefits of corporate income taxation that may be at risk. In particular, the paper surveys the empirical evidence for a backstop function of the corporate income tax that allows preserving individual taxes. |
| Keywords: | tax competition, corporate taxation |
| JEL: | H25 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1495&r=pub |
| By: | Paolo Panteghini |
| Abstract: | This article studies the characteristics of a S-based tax system under default risk. In particular we show that its neutrality properties depend on whether debt is protected or unprotected. In the former case, this system is neutral. In the latter case, where default timing is optimally chosen by shareholders, the S-based system is neutral with respect to real decisions only if the firm’s and the lender’s tax rate are equal. However, the shareholders’ decision to default is always distorted. |
| Keywords: | capital structure, corporate taxation, neutrality, option pricing |
| JEL: | H25 H32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1496&r=pub |
| By: | Christian Keuschnigg; Martin D. Dietz |
| Abstract: | This paper proposes a growth-oriented dual-income tax by combining an allowance for corporate equity with a broadly defined flat tax on personal capital income. Revenue losses are compensated by an increase in the value added tax. The paper demonstrates the neutrality properties of the reform with respect to investment, firm financial decisions and organizational choice. Tax rates are chosen to prevent income shifting from labor to capital income. The reform decisively strengthens investment of domestically owned firms as well as home and foreign based multinationals and boosts savings. Simulations with a calibrated growth model for Switzerland indicate that the reform could add between 2 to 3 percent of GDP in the long run, depending on the specific scenario. Given the slow nature of capital accumulation, it also imposes considerable costs in the short run. We also consider a tax smoothing scenario to offset the intergenerationally redistributive effects. |
| Keywords: | tax reform, investment, financial structure, growth |
| JEL: | D58 D92 E62 G32 H25 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1513&r=pub |
| By: | Philippe Thalmann |
| Abstract: | Equity and neutrality are distinct concepts in housing taxation and weak and strong tenure neutrality should be distinguished. When a tax system is tested for those criteria, the taxes paid by landlords must be included, as they affect the rents renters pay. This paper defines appropriate tests, applies them to a stylised tax system and simulates tax changes designed to restore equity and/or neutrality. It shows how the homeowner's implicit income should be computed for taxes to be fundamentally tenure neutral or equitable or both. And it shows the key role played by the differential in producing housing services under owner-occupation and renting. |
| Keywords: | Housing taxation; tenure choice; tax equity; tax neutrality |
| JEL: | R21 R31 H21 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp147&r=pub |
| By: | Sanjit Dhami; Ali al-Nowaihi |
| Abstract: | Given actual probabilities of audit and penalty rates observed in the real world, tax evasion should be an extremely attractive gamble to an expected utility maximizer. However, in practice, one observes too much compliance relative to the predictions of expected utility. This paper considers an alternative theoretical model that is based on Kahneman and Tversky’s cumulative prospect theory. The model predicts empirically plausible magnitudes of tax evasion despite low audit probabilities and penalty rates. An increase in the tax rate leads to an increase in the amount evaded- a result, which is in broad agreement with the evidence, but is contrary to the prediction made by expected utility theory. Furthermore, we show that the optimal tax rates predicted by prospect theory, in the presence of tax evasion behaviour, are consistent with actual tax rates. |
| Keywords: | Reference Dependence; Loss Aversion; Decision Weights; Prospect Theory; Expected Utility Theory; Tax Evasion; Optimal taxation |
| JEL: | D81 H26 K42 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:05/23&r=pub |
| By: | Sanjit Dhami; Ali al-Nowaihi |
| Abstract: | The neglect of administrative issues is a serious limitation of optimal tax theory, with implications for its practical applicability. Under uncertainty, the problems for optimal tax theory are compounded when the full set of tax instruments is neglected. These twin issues are addressed in this paper, by focussing on a fundamental implication of administrative problems, namely, that the tax bases are measured with some error. Consumption taxes can perform the ‘social insurance role of taxation’; a role previously ascribed only to income taxes. A combination of income and consumption taxes can hedge income and measurement-error risks better, relative to the imposition of these taxes alone. The optimal taxes are decreasing in the imprecision with which the corresponding tax base is measured. The taxpayer engages in precautionary savings, in response to uncertainty arising on account of income and measurement problems. Differential commodity taxes, tailored to the measurability characteristics of the different tax bases, dominate uniform commodity taxes. Furthermore, the paper provides a simple, tractable framework for optimal tax theorists interested in diverse kinds of uncertain situations. |
| Keywords: | Social Insurance; Measurability of tax bases; Yardstick Competition; Differentiated taxes |
| JEL: | H21 D82 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:05/25&r=pub |
| By: | Alain De Serres; Kwang-Yeol Yoo |
| Abstract: | <P>This paper provides, for all OECD countries, an estimate of the net tax cost per currency unit of contribution to a tax-favoured retirement savings plan, using a present-value methodology. The latter takes into account the future flows of revenues foregone on accrued income and of revenues collected on benefit withdrawals corresponding to a unit contribution made in a given year. The net tax cost is first calculated for nine (five-year) age groups, which have different relative income levels and investment time horizons, and is then averaged across age groups. In order to take into consideration the relevant country-specific features of savings taxation, the paper also provides an overview of the tax treatment of private pension arrangements and alternative savings vehicles. The results indicate that the size of tax subsidy varies significantly across countries, ranging from nearly 40 cents per unit of contribution (Czech Republic) to around zero (Mexico, New Zealand). Over half of ...</P> <P>Traitement fiscal des pensions privées dans les pays de l’OCDE et le coût fiscal net par unité de contribution à un plan d’épargne retraite <P>Cette étude présente pour l’ensemble des pays de l’OCDE, une estimation du coût fiscal net (<I>e.g.</I> dollar ou euro) de contribution à un plan d’épargne retraite à traitement fiscal favorable, à partir d’une méthode de valeur présente. Cette dernière prend en compte les pertes futures de recettes fiscales découlant de la nontaxation des revenus d’intérêt ainsi que des recettes encaissées au moment de la perception des bénéfices par les détenteurs du plan de retraite. Le coût fiscal net est calculé pour neuf groupe d’âge (de cinq ans chacun), disposant de niveaux de revenus et d’horizons d’investissement différents. Le coût par groupe d’âge est ensuite aggrégé pour obtenir un coût moyen pour l’ensemble de la population. Les résultats indiquent que la valeur de l’incitatif fiscal varie de façon significative à travers les pays, passant de 40 cents par unité de contribution (République Tchèque) à près de zéro (Mexique, Nouvelle-Zélande). Plus de la moitié de pays de l’OCDE encourt ...</P> |
| Keywords: | comprehensive income tax, expenditure tax, private pension, net tax cost, revenue foregone method, Impôt sur le revenue, dépense fiscale, pension privée, coût fiscal net |
| JEL: | E21 G23 H21 H24 H31 |
| Date: | 2004–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:406-en&r=pub |
| By: | María A. García-Valiñas; Roberto Fernández Llera; Benno Torgler |
| Abstract: | Do people prefer a society with an extensive social welfare system with high taxes, or low taxes but lax redistributive policies? Although economists have for a long time investigated the trade-off mechanism between equity and efficiency, surprisingly little information is available about citizens’ preferences over the distribution of income in a society. The aim of this paper is reduce this shortcoming, investigating in an empirical study working with World Values Survey, what shapes individuals’ preferences for income equality in Spain. We present evidence that not only traditional economic variables are relevant to be considered, but also factors such as ideology, political interest, fairness perception about others or trust in institutions, are key determinants to understand preferences towards redistribution and equality. |
| Keywords: | redistribution; inequality; welfare state; social capital |
| JEL: | H23 H53 I31 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2005-23&r=pub |
| By: | Paul Makdissi (Département d'économique, Université de Sherbrooke); Jean-Yves Duclos (Pavillon De sève, Université Laval, Sainte-Foy, Québec, Canada) |
| Abstract: | This paper proposes graphical methods to determine whether commodity-tax changes are socially improving , in the sense of improving social welfare or decreasing poverty for large classes of social welfare and poverty indices. It also derives estimators of critical poverty lines and economic efficiency ratios which can be used to characterize socially-improving tax reforms. The statistical properties of the various estimators are derived in order to make the method implementable using survey data. The methodology is illustrated using Mexican data. |
| Keywords: | Social welfare, Poverty, Efficiency, Tax Reform, Stochastic Dominance |
| JEL: | D12 D63 H21 I32 |
| Date: | 2001 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:02-01&r=pub |