nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒04‒24
six papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. We Should Drink No Wine Before Its Time By Rachel Goodhue; Jeffrey LaFrance; Leo Simon
  2. The Pigouvian Tax Rule in the Presence of an Eco-Industry By Bernard Sinclair-Desgagné; Alain-Désiré Nimubona
  3. Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities By Maya Bacache-Beauvallet; Etienne Lehmann
  4. Tax Structure in Developing Countries: Many Puzzles and a Possible Explanation By Roger Gordon; Wei Li
  5. Optimal provision of public goods under imperfect intergovernmental competition By Ponzano, Ferruccio
  6. Tax system and tax reforms in India By Bernardi, Luigi; Fraschini, Angela

  1. By: Rachel Goodhue (University of California, Davis); Jeffrey LaFrance (University of California, Berkeley); Leo Simon (University of California, Berkeley)
    Abstract: We consider the impact of taxes on the quantity and quality produced of goods whose market values accrue with age. The analysis is motivated by the high and increasing taxation rates in the wine industry across the globe. If society values both quality and quantity as goods, an optimal tax system would never reduce the quality marketed, though it necessarily reduces quantity. Any two-tax system that includes a volumetric sales tax and any one of three other types of tax - an ad valorem sales tax, an ad valorem storage tax, or a volumetric storage tax - spans the quality/revenue space and can support an optimal tax system. Any tax system that reduces quality relative to the market equilibrium with no taxes could increase tax revenues and reduce the quality distortion without increasing the quantity distortion. Given this, the only explanation for taxation schemes that reduce both the quantity and quality of goods like wine must be a Calvinistic social welfare function.
    Keywords: stochastic models, taxation, wine industry, wines,
    Date: 2004–02–01
  2. By: Bernard Sinclair-Desgagné (HEC Montréal); Alain-Désiré Nimubona (Institute of Applied Economics, HEC Montréal)
    Abstract: Pollution abatement goods and services are now largely being delivered by a specialized “eco-industry.” This note reconsiders Pigouvian taxes in this context. We find that the optimal emission tax will depart from the marginal social cost of pollution according to the polluters’ and the environment firms’ relative market power.
    Keywords: Pigouvian taxes, Environment industry
    JEL: H23 L13
    Date: 2005–04
  3. By: Maya Bacache-Beauvallet (CEPREMAP, ENS Paris-Jourdan); Etienne Lehmann (ERMES, University of Paris 2 and IZA Bonn)
    Abstract: This article studies the political choice over the extent and the means of income redistribution between high and low skilled workers. Redistributive tools encompass fiscal transfers with negative income tax and minimum wage. Using fiscal instruments only is assumed optimal. We show that high skilled workers may favor a second-best minimum wage requirement. This is because minimum wage increases unemployment, hence the marginal cost of redistribution is higher which gives a pretext for high skilled workers to moderate low skilled workers claim for income redistribution.
    Keywords: unemployment, political economics, income redistribution, minimum wage
    JEL: D78 E24 H23 J38
    Date: 2005–04
  4. By: Roger Gordon; Wei Li
    Abstract: Tax policies seen in developing countries are puzzling on many dimensions. To begin with, revenue/GDP is surprisingly small compared with that in developed economies. Taxes on labor income play a minor role. Taxes on consumption are important, but effective tax rates vary dramatically by firm, with many firms avoiding taxes entirely by operating through cash in the informal economy and others facing very high liabilities. Taxes on capital are an important source of revenue, as are tariffs and seignorage, all contrary to the theoretical literature. In this paper, we argue that all of these aspects of policy may be sensible responses if a government is able in practice to collect taxes only from those firms that make use of the financial sector. Through use of the financial sector, firms generate a paper trail, facilitating tax enforcement. The threat of disintermediation then limits how much can be collected in taxes. Taxes can most easily be collected from the firms most dependent on the financial sector, presumably capital-intensive firms. Given the resulting differential tax rates by sector, other policies would sensibly be used to offset these tax distortions. Tariff protection for capital-intensive firms is one. Inflation, imposing a tax on the cash economy is another.
    JEL: H21 O23 O17 F23
    Date: 2005–04
  5. By: Ponzano, Ferruccio
    Abstract: The aim of this paper is to develop a model that includes two tiers of government providing public goods with the same tax base to finance them. Their rent is related to the level of competition. Citizens maximize their own utility starting from these different levels of competition. Therefore, they can decide to turn down the governments to induce them to behave efficiently. Moreover, governments can choose whether to accept the behaviour urged by citizens or to maximize their rent for a single period of office and consequently lose the next elections.
    JEL: H11 H21 H71 H77
    Date: 2005–04
  6. By: Bernardi, Luigi; Fraschini, Angela
    Abstract: This paper is part of a wider research on South-East Asia countries’ taxation carried on under the supervision of. V. Tanzi. India is a federal republic and a big, highly populated and poor country, which however since some years has entered the catching up stage of development and shows impressive rates of GDP growth. General Government budget is structurally imbalanced and public debt stays high. Public spending (about 25 percent of GDP) is mainly devoted to general services, defense, and the support of economic activities, rather than to public health and welfare programs. Total fiscal pressure (about 17 percent of GDP) is in line with per capita GDP and is shared evenly enough between central and states governments. The structure of the tax system is not much beyond the Musgravian “early stage”. A complex structure of taxes on goods and services is largely the main heading of the tax system and it is difficultly moving towards a VAT-kind structure. Direct taxes still are in an infant state, both as weight as well as structure. Import duties remain at not negligible levels. Social contributions are entirely lacking. A tax system of a country like India unavoidably raises more than one problem: foremost among these problems appear to be a too large dominance of a complex and obsolete indirect taxation and the fiscal relations among government layers. The road to updating and improving the Indian tax system has been entered since the early 1990s, but the reform is still largely to be accomplished. Introducing VAT – so successfully adopted in other developing countries – is the most striking but not the only example.
    JEL: H20 H24 H25 H29
    Date: 2005–04

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