nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒08‒18
nine papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Distortionary Taxation, Rule of Thumb Consumers and the Effect of Fiscal Reforms By Andrea Colciago
  2. The Evolution of Tax Morale in Modern Spain By Jorge Martinez-Vazquez; Benno Torgler
  3. Is Foreign-Owned Capital a Bad Thing to Tax? By William Scarth
  4. Fiscal Discrimination Between Consumer Groups: Tax Burden Distribution Under Price Discrimination By Jörg Plewka
  5. Tax Effort: The Impact of Corruption, Voice and Accountability By Richard Bird; Jorge Martinez-Vazquez; Benno Torgler
  6. Infrastructure in South Africa: Who is to finance and who is to pay? By Estian Calitz; Johan Fourie
  7. Is a State VAT the Answer? What’s the Question? By Richard M. Bird
  8. Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour By Wolfram F. Richter
  9. The Political Opinions of Swedish Social Scientists By Jordahl, Henrik; Berggren, Niclas; Stern, Charlotta

  1. By: Andrea Colciago (Department of Economics, University of Milan-Bicocca)
    Abstract: We consider a standard growth model augmented with a share of rule of thumb con- sumers. A Government ?nances a preset level of public expenditure through ?at tax rates on labor and capital income and also makes lump sum transfers to non ricardian consumers. It has been shown in representative agents models with perfect competition that balanced budget rules with endogenous tax rates are likely to generate indetermi- nacy of the perfect foresight equilibrium. We show that the presence of rule of thumb consumers reduces this possibility. Further, we show that a ?scal reform which features a reduction in the capital income tax rate and leads to the steady state where the welfare of non ricardian agents is maximized could be Pareto improving. This is obtained via a direct redistribution of resources to rule of thumb consumers along the transition path.
    Keywords: Non Ricardian Agents, Fiscal Policy, Capital Income Tax Rate
    JEL: E62
    Date: 2007
  2. By: Jorge Martinez-Vazquez; Benno Torgler
    Abstract: This paper studies the evolution of tax morale in Spain in the post-Franco era. In contrast to the previous tax compliance literature, the current paper investigates tax morale as the dependent variable and attempts to answer what actually shapes tax morale. The analysis uses survey data from two sources: the World Values Survey and the European Values Survey, allowing us to observe tax morale in Spain for the years 1981, 1990, 1995, and 1999/2000. The study of the evolution of tax morale in Spain over nearly a 20-year span is particularly interesting because the political and fiscal system evolved very rapidly during that period.
    Keywords: Spain, Tax morale, Tax compliance, Constitutional and political changes, fiscal system, endogenous preferences.
    JEL: H26 H73 K42 O17 Z13
    Date: 2007–08–14
  3. By: William Scarth
    Abstract: The aging population has raised at least two concerns about tax policy. First, taxes will need to be increased to cover higher public-pension and medical-care expenses when baby boomers have retired. Second, taxes can be cut in the meantime, as the government realizes the "fiscal dividend" that accompanies its debt reduction program (that has been motivated by the aging population development). This paper uses a simple endogenous growth analysis to examine these issues. It is assumed that sales tax increases are infeasible on political grounds. Two conclusions emerge: the income tax rate levied on domestic residents should be cut during the debt-reduction period, and the tax rate on foreigners whose capital is operating in Canada should be increased later on when the bulk of the baby boomers have retired.
    Keywords: fiscal policy, endogenous growth, open economy
    JEL: E10 E60 F43 H30 O40
    Date: 2007–06
  4. By: Jörg Plewka
    Abstract: In this paper it is analysed, how, under price discrimination, the tax burden is shared between the distinct consumer groups. Unit and ad valorem taxes are compared, revealing an impossibility of fiscal discrimination with regard to price changes. Contrary to conventional tax incidence analysis, it is shown that quantities traded do matter. Relative market shares are decisive for the distribution of tax burdens thereby opening up an opportunity for fiscal discrimination in choosing tax types. This discriminatory potential is limited and not caused by price discrimination per se but rather due to monopolistic supply.
    Keywords: Tax incidence, unit tax, ad valorem tax, price discrimination
    JEL: H22 L11
    Date: 2007–07
  5. By: Richard Bird; Jorge Martinez-Vazquez; Benno Torgler
    Abstract: In this paper we argue that a more legitimate and responsive state is an essential factor for a more adequate level of tax effort in developing countries. While at first glance giving such advice to poor countries seeking to increase their tax ratios may not seem more helpful than telling them to find oil, it is presumably more feasible for people to improve their governing institutions than to rearrange nature’s bounty. Improving corruption, voice and accountability may not take longer nor be necessarily more difficult than changing the opportunities for tax handles and economic structure. The key contribution of this paper is to extend the conventional model of tax effort by showing that not only do supply factors matter, but that demand factors such as corruption, voice and accountability also determine tax effort to a significant extent.
    Keywords: Tax effort, tax reforms, developing countries, Latin America, corruption, voice and accountability.
    JEL: H11 H20 O17
    Date: 2007–08–14
  6. By: Estian Calitz (Department of Economics, Stellenbosch University); Johan Fourie (Department of Economics, Stellenbosch University)
    Abstract: Against the backdrop of shifting views on the role of government in the provision of infrastructure, this paper distinguishes between the payment for and financing of the South African Government’s infrastructure investment programme. The paper also presents a classification system that enables a systematic mapping of all prospective projects, with reference to considerations of efficiency and equity. This mapping should assist in macro planning and in any analysis of the financial implications of project financing and cost recovery at all levels of government. The government’s financing strategy is questioned and alternatives are identified. The prospects for mobilising funds other than tax revenue are assessed, namely government loans, private equity, development finance and donor funds. Four investment projects are considered with a view to testing the classification system and evaluating the chosen financing options in terms of economic criteria.
    Keywords: Infrastructure financing, government loans, benefit taxation, guarantees, private-public partnerships, South Africa
    JEL: H54 H81 H72
    Date: 2007
  7. By: Richard M. Bird (International Tax Program, Rotman School of Management, and Institute of Municipal Finance and Governance, Munk Centre for International Studies, University of Toronto, 105 St. George Street, Toronto, ON, Canada M5S 3E6,)
    Abstract: I argue in this paper that state value-added tax is more likely to be the right way to tax sales at the state level than seems to be recognized in most current US discussion. As Canadian experience demonstrates, a state VAT is both better in principle than even the best state retail sales tax (RST) and should be not much more difficult to administer in practice at the state level. A principal reason why states should consider VAT as a possible replacement for an RST is to make themselves more competitive by removing the present distorting and undesirable tax on business imposed through RSTs.
    Date: 2007
  8. By: Wolfram F. Richter
    Abstract: Assuming isoelastic returns to education and an endogenous supply of qualified and nonqualified labour, it is shown to be second-best efficient not to distort the choice of education. Furthermore, taxation should set incentives so that qualified labour is substituted for nonqualified labour. As a result, it is efficient to tax labour income regressively with respect to qualification and to tax the monetary cost of education at a level that restores efficiency in education. Atax on capital income alleviates the distortion that progressive taxation of labour income exerts on human-capital investment.
    Keywords: Endogenous choice of education and labour, efficient taxation of human and nonhuman capital, double-dividend hypothesis
    JEL: H21 I28 J24
    Date: 2007–05
  9. By: Jordahl, Henrik (Research Institute of Industrial Economics (IFN)); Berggren, Niclas (Ratio); Stern, Charlotta (Swedish Institute of Social Research (SOFI))
    Abstract: We study the political opinions of Swedish social scientists in seven disciplines. A survey was sent to 4,301 academics at 25 colleges and universities, which makes the coverage of the disciplines included more or less comprehensive. When it comes to party sympathies there are 1.3 academics on the right for each academic on the left – a sharp contrast to the situation in the United States, where Democrats greatly dominate the social sciences. The corresponding ratio for Swedish citizens in general is 1.1. The most left-leaning disciplines are sociology and gender studies, the most right-leaning ones are business administration, economics, and law, with political science and economic history somewhere in between. The differences between the disciplines are smaller in Sweden than in the more polarized U.S. We also asked 14 policy questions. The replies largely confirm the pattern of a left-right divide – but overall the desire to change the status quo is tepid.
    Keywords: Academics; Social Scientists; Policy Views; Political Opinions; Party Sympathies
    JEL: A11 A13 A14
    Date: 2007–08–08

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