nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2008‒08‒21
three papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Optimal Taxation, Social Contract and the Four Worlds of Welfare Capitalism By Olivier Bargain; Amedeo Spadaro
  2. The Degradation of Distorted Performance Measures By Randolph Sloof; Mirjam van Praag
  3. Subnational Taxes in Developing Countries: The Way Forward. By Richard M. Bird; Roy Bahl

  1. By: Olivier Bargain (University College of Dublin); Amedeo Spadaro (Paris School of Economics)
    Abstract: Drawing from the formal setting of the optimal tax theory (Mirrlees 1971), the paper identifies the level of Rawlsianism of some European social planner starting from the observation of the real data and redistribution systems and uses it to build a metric that allows measuring the degree of (dis)similarity of the redistribution systems analyzed. It must be considered as a contribution to the comparative research on the structure and typology of the Welfare State (Esping-Andersen, 1990). In particular we consider the optimal taxation model that combines both intensive (Mirrlees) and extensive (Diamond) margins of labor supply, as suggested by Saez (2002) in order to assess the degree of decommodification of seven European welfare systems. We recover the shape of the social welfare function implicit in taxbenefit systems by inverting the model on actual effective tax rates, as if existing systems were optimal according to some Mirrleesian social planner. Actual distributions of incomes before and after redistribution are obtained using a pan-European tax-benefit microsimulation model. Results are discussed in the light of standard classifications of welfare regimes in Europe. There appears to be a clear coincidence of high decommodification and high Rawlsianism in the Scandinavian, social-democratically influenced welfare states (Denmark). There is an equally clear coincidence of low decommodification and utilitarianism in the Anglo–Saxon liberal model (UK) and in the Southern European welfare states (Italy and Spain). Finally, the Continental European countries (Finland, Germany and France) group closely together in the middle of the scale, as corporatist and etatist.
    Keywords: Optimal income taxation, tax-benefit policy, microsimulation, comparative social policy analysis, welfare state models
    JEL: H11 H21 D63 C63
    Date: 2008–07–30
  2. By: Randolph Sloof (University of Amsterdam, and IZA); Mirjam van Praag (University of Amsterdam, IZA, and Max Planck Institute of Economics)
    Abstract: Baker (2002) has demonstrated theoretically that the quality of performance measures used in compensation contracts hinges on two characteristics: noise and distortion. These criteria, though, will only be useful in practice as long as the noise and distortion of a performance measure can be measured. Courty and Marschke (2007) have recently developed an elegant empirical test to detect distortion, based on the degradation of a performance measure subsequent to increasing its weight in the remuneration contract. We apply their test to assess the distortion of the often used class of performance measures that are based on ‘Residual Income’ (RI), such as ‘Economic Value Added’ (EVA). Residual income is widely used to measure and reward the performance of management boards. We use a difference-in-difference approach to account for (a) changes in economic circumstances in the period studied and (b) the self-selection of firms into the treatment and the control groups. Our results show that RI has degraded and is, therefore, a distortionary performance measure that can be gamed.
    Keywords: Residual income; EVA; degradation; distortion; performance measurement; management compensation; incentive compensation
    JEL: D21 G35 J33 L21 M41 M52
    Date: 2008–08–12
  3. By: Richard M. Bird (University of Toronto); Roy Bahl (University of Toronto; Georgia State University)
    Abstract: This paper reviews the literature and evidence on the most appropriate structure of regional and local taxes in developing countries. A good subnational tax system is critical to an effective and sustainable system of intergovernmental fiscal relations – a need that has become increasingly important around the world as more and more public services are being delivered through subnational governments. In most developing countries potentially sound and productive taxes exist that are suitable for regional and local governments: property taxes, taxes on motor vehicles, surcharges on national personal income taxes, payroll taxes, and even, in some cases, regional value added taxes and properly designed local business taxes.
    Keywords: local taxes; regional taxes; fiscal decentralization
    JEL: H71 H77 O23
    Date: 2008–08

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