nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2007‒04‒28
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Reading the fine print: how details matter in tax and expenditure limitations By Heather Brome; Darcy Rollins Saas
  2. How the Distribution of After-Tax Income Changed Over the 1990s Business Cycle: A Comparison of the United States, Great Britain, Germany and Japan By Richard V. Burkhauser; Takashi Oshio; Ludmila Rovba
  3. The Optimal Pricing of Pollution When Enforcement is Costly By John K. Stranlund; Carlos A. Chavez; Mauricio G. Villena
  4. Optimal Capital Income Taxation in a Two Sector Economy By Selim, Sheikh
  5. Davis v. Department of Revenue of Kentucky: A Preliminary Impact Assessment By Dwight Denison; Merl Hackbart; Michael Moody

  1. By: Heather Brome; Darcy Rollins Saas
    Abstract: At least 30 states, including Connecticut, Maine, Massachusetts, and Rhode Island, operate under “tax and expenditure limitations” (TELs): formula-based budgeting requirements that apply specific limits to expenditures, appropriations, or revenue collections by state or local government. More than a dozen states considered TELs in 2006. Legislation proposing a new TEL to further limit General Fund appropriations in Rhode Island was introduced; Maine citizens will vote on a more restrictive TEL this November. ; Several factors, including a desire for lower taxes and a belief that additional measures are needed to keep government spending in check, drive this interest in TELs. This paper discusses such arguments.
    Keywords: Taxation ; Local finance ; State finance ; Tax and expenditure limitations ; Property tax
    Date: 2006
  2. By: Richard V. Burkhauser (Cornell University); Takashi Oshio (Cornell University); Ludmila Rovba (Cornell University)
    Abstract: We find that, over their 1990s business cycles, the entire distribution of after-tax household size-adjusted income moved to the right in the United States and Great Britain while inequality declined. In contrast, Germany and Japan had less income growth, a rise in inequality and a decline in the middle mass of their distributions that spread mostly to the right, much like the United States experienced over its 1980s business cycle. In the United States and Japan, younger persons fared relatively better than older persons while the opposite was the case in Great Britain and Germany.
    Date: 2006–12
  3. By: John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst); Carlos A. Chavez (Departmento de Economia, Universidad de Concepcion, Chili); Mauricio G. Villena (School of Business, Universidad Adolfo Ibanez, Santiago, Chili)
    Abstract: We consider the pricing of a uniformly mixed pollutant when enforcement is costly with a model of optimal, possibly firm-specific, emissions taxes and their enforcement. We argue that optimality requires an enforcement strategy that induces full compliance by every firm. This holds whether or not regulators have complete information about firms’ abatement costs, the costs of monitoring them for compliance, or the costs of collecting penalties from noncompliant firms. Moreover, ignoring several unrealistic special cases, optimality requires discriminatory emissions taxes except when regulators are unable to observe firms’ abatement costs, the costs of monitoring individual firms, or any firm-specific characteristic that is known to be jointly distributed with either the firms’ abatement costs or their monitoring costs. In many pollution control settings, especially those that have been subject to various forms of environmental regulation in the past, regulators are not likely to be so ill-informed about individual firms. In these settings, policies that set or generate a uniform pollution price like conventional designs involving uniform taxes and competitive emission trading with freely-allocated or auctioned permits will not be efficient.
    Keywords: Compliance, Enforcement, Emissions Taxes, Monitoring, Asymmetric Information, Uncertainty
    JEL: L51 Q58
    Date: 2007–04
  4. By: Selim, Sheikh (Cardiff Business School)
    Abstract: We extend the celebrated Chamley-Judd result of zero capital income tax and show that the steady state optimal capital income tax is nonzero, in general. In particular, we find that the optimal plan involves zero capital income tax in investment sector and a nonzero capital income tax in consumption sector. In a two sector neoclassical economy, interdependence of labour and capital margins allows the government to choose an optimal policy that involves nonzero tax on capital income. The distortion created by capital income tax in consumption sector can be undone by setting different rates of labour income taxes. The optimal plan thus involves zero capital income tax in both sectors only if optimal labour income taxes are equal. This may not be the optimal policy if marginal disutility of work is different across sectors and/or the social marginal value of capital is different across sectors. The difference in social marginal value of capital can be undone by setting different labour income taxes across sectors. We also show that if the government faces a constraint of keeping same capital and labour income tax rates across sectors, optimal capital income tax is nonzero.
    Keywords: Optimal taxation; Ramsey problem; Primal approach; Two-sector model
    JEL: C61 E13 E62 H21
    Date: 2007–04
  5. By: Dwight Denison (Martin School of Public Policy and Administration, University of Kentucky); Merl Hackbart (Martin School of Public Policy and Administration, University of Kentucky); Michael Moody (Department of Public Administration, University of Kansas)
    Abstract: States with income taxes frequently exempt municipal bond interest from state taxation. Such exemptions, referred to as double exempts, are tax expenditures that reduce state revenues, but are viewed as a subsidy to the cost of capital for the state and its localities. All but a few states provide the income tax exemption for state based issues while taxing interest from municipal bonds issued by muni issuers in other states. A recent court case, Davis vs. Department of Revenue of Kentucky, declared state statutes limiting the state income tax exemptions to ”in-state” issues unconstitutional. This paper provides some legal background and context for the current case and addresses two key fiscal implications of this case. First, the paper presents a basic model that suggests that bonds issued by states with higher marginal tax rates would see the yields increase on their obligations while states with lower than average marginal tax rates would see their yields decline. The yields would converge at new market equilibrium due to the elimination of tax preferences across the states. Second, the preliminary estimates suggest a good deal of variance in how much tax revenue each state will lose if the case is upheld by the Supreme Court.
    Date: 2007–04

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