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on Public Economics |
| By: | Selim, Sheikh |
| Abstract: | The Ramsey approach to optimal taxation and Ramsey tax rules have amassed substance in economic theory. However, they are often criticized on grounds of practicality, fairness, feasibility and some other aspects of designing actual tax policy. This paper presents a collection of these views; it discusses how closely or remotely Ramsey rules are followed in designing tax policy. It presents some recent tax reforms in the US and in the UK that have closely, if not completely, followed the principle of distortion minimization. Despite the widely speculated difficulty associated with mapping normative tax rules into positive policy design, it is possible to implement taxes that have strong correspondence to Ramsey tax formulas. This paper also discusses why some implemented tax rules lack consistency with Ramsey principles, or why it is often difficult to establish correspondence between some implemented taxes and Ramsey tax rules. |
| Keywords: | Optimal Taxation, Policy Relevance, Ramsey Tax Rules |
| JEL: | E61 E62 H21 H30 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:5736&r=pbe |
| By: | L. Marattin |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:589&r=pbe |
| By: | L. Marattin |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:588&r=pbe |
| By: | Raffaella SANTOLINI (Universita' Politecnica delle Marche, Dipartimento di Economia) |
| Abstract: | The aim of this paper is to conduct an empirical investigation regarding the presence of political and informative trends in tax setting of local governments as an alternative theoretical explanation to the tax mimick-ing. Both phenomena have been tested on municipalities' cross-sectional data of the Marche region with a spatial econometrics model. Discrimi-nating among several sources of tax mimicking, including public spend-ing spill-over, some evidence was found in favour of the political trend. As regards the informative trend, non significant results were observed testing tax interaction among heterogeneous coalitions. However, some evidence is present on local public spending. |
| Keywords: | informative trend, political trend, spatial econometrics, tax mimicking |
| JEL: | C31 H71 H72 H77 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:294&r=pbe |
| By: | Francisco J. Gomes (London Business School and CEPR); Laurence J. Kotlikoff (Boston University and NBER); Luis M. Viceira (Harvard Business School, CEPR and NBER) |
| Abstract: | Governments are known for procrastinating when it comes to resolving painful policy problems. Whatever the political motives for waiting to decide, procrastination distorts economic decisions relative to what would arise with early policy resolution. In so doing, it engenders excess burden. This paper posits, calibrates, and simulates a life cycle model with earnings, lifespan, investment return, and future policy uncertainty. It then measures the excess burden from delayed resolution of policy uncertainty. The first uncertain policy we consider concerns the level of future Social Security benefits. Specifically, we examine how an agent would respond to learning in advance whether she will experience a major Social Security benefit cut starting at age 65. We show that having to wait to learn materially affects consumption, saving, and portfolio decisions. It also reduces welfare. Indeed, we show that the excess burden of government indecision can, in this instance, range as high as 0.6 percent of the agent's economic resources. This is a significant distortion in of itself. It's also significant when compared to other distortions measured in the literature. The second uncertain policy we consider concerns marginal tax rates. We obtain similar results once we adjust for the impact of tax rates on income. |
| JEL: | H2 H21 H55 H6 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2007-005&r=pbe |
| By: | Edgar Morgenroth (Economic and Social Research Institute (ESRI)) |
| Abstract: | In Ireland as in many other countries there has been an ongoing debate on the nature, degree and trends of regional imbalance, which has led to substantial research output. While much is now known about these trends, the degree to which they are ameliorated by existing public policies has not been systematically examined. This paper considers two aspects of public policy namely the fiscal system and public expenditure. In particular regional government accounts are constructed, which identify the level of taxation, subsidisation and public expenditure at the regional level. These are then used to identify the degree of regional re-distribution. That analysis confirms that the fiscal system does reduce relative income differences in Ireland. Dublin and the South-West contribute to a substantial resource transfer to other regions. In contrast to the findings for the UK, the level of transfers is found to be highly related to the state of development. In other words the fiscal system works in a progressive manner in relation to regional disparities. Nevertheless the better off regions receive an above average level of expenditure so that the system only partially equalises. |
| Keywords: | Regional disparities, government expenditure, taxes |
| JEL: | H72 H77 R11 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp195&r=pbe |
| By: | Kristian, BEHRENS; Johnathan H. HAMILTON; Gianmarco I.P., OTTAVIANO |
| Abstract: | We develop a model of commodity tax competition with monopolistically competitive internationally mobile firms, transport costs, and asymmetric country sizes. We investigate the impacts of non-cooperative tax setting, as well as of tax harmonization and changes in the tax principle, in both the short and the long run. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet leads to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial- choice for their tax principle that goes beyond the standard considerations of tax revenue redistribution. |
| Keywords: | commodity tax competitions; origin principle; destination principle; tax harmonization; industry location |
| JEL: | F12 H22 H87 R12 |
| Date: | 2007–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2007020&r=pbe |
| By: | Ugo Colombino; Rolf Aaberge |
| Abstract: | The purpose of this paper is to present an exercise where we identify optimal income tax rules under the constraint of fixed tax revenue. To this end, we estimate a microeconomic model with 78 parameters that capture heterogeneity in consumption-leisure preferences for singles and couples as well as in job opportunities across individuals based on detailed Norwegian household data for 1994. For any given tax rule, the estimated model can be used to simulate the choices made by single individuals and couples. Those choices are therefore generated by preferences and opportunities that vary across the decision units. Differently from what is common in the literature, we do not rely on a priori theoretical optimal taxation results, but instead we identify optimal tax rules – within a class of 6-parameter piece-wise linear rules - by iteratively running the model until a given social welfare function attains its maximum under the constraint of keeping constant the total net tax revenue. We explore a variety of social welfare functions with differing degree of inequality aversion and also two alternative social welfare principles, namely equality of outcome and equality of opportunity. All the social welfare functions turn out to imply an average tax rate lower than the current 1994 one. Moreover, all the optimal rules imply – with respect to the current rule – lower marginal rates on low and/or average income levels and higher marginal rates on relatively high income levels. These results are partially at odds with the tax reforms that took place in many countries during the last decades. While those reforms embodied the idea of lowering average tax rates, the way to implement it has typically consisted in reducing the top marginal rates. Our results instead suggest to lower average tax rates by reducing marginal rates on low and average income levels and increasing marginal rates on very high income levels. |
| Keywords: | Labour supply, optimal taxation, random utility model, microsimulation |
| JEL: | H21 H31 J22 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp20_06&r=pbe |
| By: | Néstor Duch (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona); Daniel Montolio (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Economia Política i Hisenda Pública, Universitat de Barcelona); Mauro Mediavilla (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Economia Política i Hisenda Pública, Universitat de Barcelona) |
| Abstract: | Many regional governments in developed countries design programs to improve the competitiveness of local firms. In this paper, we evaluate the effectiveness of public programs whose aim is to enhance the performance of firms located in Catalonia (Spain). We compare the performance of publicly subsidised companies (treated) with that of similar, but unsubsidised companies (non-treated). We use the Propensity Score Matching (PSM) methodology to construct a control group which, with respect to its observable characteristics, is as similar as possible to the treated group, and that allows us to identify firms which retain the same propensity to receive public subsidies. Once a valid comparison group has been established, we compare the respective performance of each firm. As a result, we find that recipient firms, on average, change their business practices, improve their performance, and increase their value added as a direct result of public subsidy programs. |
| Keywords: | Public policy, evaluation studies, firm performance, propensity Score Matching. |
| JEL: | H25 H32 L25 L53 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:xrp:wpaper:xreap2007-07&r=pbe |
| By: | Andrew Leigh |
| Abstract: | Using panel data from US states over the period 1941-2002, I measure the impact of gubernatorial partisanship on a wide range of different policy settings and economic outcomes. Across 32 measures, there are surprisingly few differences in policy settings, social outcomes and economic outcomes under Democrat and Republican Governors. In terms of policies, Democratic Governors tend to prefer slightly higher minimum wages. Under Republican Governors, incarceration rates are higher, while welfare caseloads are higher under Democratic Governors. In terms of social and economic outcomes, Democratic Governors tend to preside over higher median post-tax income, lower posttax inequality, and lower unemployment rates. However, for 26 of the 32 dependent variables, gubernatorial partisanship does not have a statistically significant impact on policy outcomes and social welfare. I find no evidence of gubernatorial partisan differences in tax rates, welfare generosity, the number of government employees or their salaries, state revenue, incarceration rates, execution rates, pre-tax incomes and inequality, crime rates, suicide rates, and test scores. These results are robust to the use of regression discontinuity estimation, to take account of the possibility of reverse causality. Overall, it seems that Governors behave in a fairly non-ideological manner. |
| Keywords: | median voter theorem, partisanship, state government, taxation, expenditure, welfare, crime, growth |
| JEL: | D72 D78 H71 H72 I38 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:556&r=pbe |
| By: | Prado, Jr., Jose Mauricio (Institute for International Economic Studies, Stockholm University) |
| Abstract: | The paper quantitatively investigates, in general equilibrium, the interaction between the firms' choice to operate in the formal or the informal sector and government policy on taxation and enforcement, given a level of regulation. A static version of Ghironi and Melitz’s (2005) industry model is used to show that firms with lower productivity endogenously choose to operate in the informal sector. I use cross-country data on taxes, measures of informality, and measures of regulation (entry and compliance costs, red tape, etc) to back out how high the enforcement levels must be country by country to make the theory match the data. Welfare gains from policy reforms can be fairly large. I find also that welfare gains from reducing regulation are almost twice those computed for the policy reform. Finally, distortions associated with informality account for a factor of 1.5 of the output per capita difference between the richest and the poorest countries. |
| Keywords: | Informal economy; General equilibrium; Regulation |
| JEL: | E61 H30 |
| Date: | 2007–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iiessp:0751&r=pbe |
| By: | Olivier Bargain (University College Dublin (UCD)); Tim Callan (Economic and Social Research Institute (ESRI)) |
| Abstract: | To assess the impact of tax-benefit policy changes on income distribution over time, we suggest a decomposition methodology based on counterfactual simulations. First, it provides an absolute measure of the impact of tax-benefit changes on inequality, which combines changes in policy structure (rules, rates, etc.) and changes in monetary parameters (benefit amounts, tax bands, etc.) against a distributionally-neutral benchmark, i.e., a situation where monetary parameters are nominally adjusted in line with income growth. We apply this measure to analyze the effect of recent policy changes in twelve European countries. Secondly, we focus on France and Ireland to assess the relative role of policy changes compared to changes in pre-tax income (distribution, composition, demographic structure, etc.). We conduct this exercise for a battery of poverty and inequality measures and check the sensitivity of the results to the decomposition order. |
| Keywords: | tax-benefit policy, inequality, poverty, decomposition, microsimulation |
| JEL: | H23 H53 I32 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp197&r=pbe |
| By: | Stéphanie Jamet |
| Abstract: | Despite France’s previously well-deserved reputation as a highly centralised state, a significant number of responsibilities have been devolved to regional and local government over the past two decades. The process has not been easy. The extremely large number of very small municipalities makes economies of scale in the implementation of policies hard to realise, and measures to overcome this have been at best only partially successful. Competence is often shared between levels of government, obscuring accountability, and the central government has often retained an arguably unnecessary degree of prerogatives. Reorganising the system to avoid overlapping responsibilities and improving transparency and accountability in local government finance provide some difficult challenges. This Working Paper relates to the 2007 OECD Economic Survey of France (www.oecd.org/eco/survey/france), and is also available in French under the title “Faire face aux défis de la décentralisation en France”. |
| Keywords: | France, fiscal federalism, decentralisation |
| JEL: | H71 H72 H77 |
| Date: | 2007–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:571-en&r=pbe |