nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒04‒25
twelve papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Reciprocity and Competition: Is There a Connection? By Jonathan C. Rork; Gary A. Wagner
  2. Are your firmÕs taxes set in Warsaw ? Spatial tax competition in Europe By Karen, CRABBE; Hylke, VANDENBUSSCHE
  3. Conspicuous Leisure: Optimal Income Taxation when both Relative Consumption and Relative Leisure Matter By Aronsson, Thomas; Johansson-Stenman, Olof
  4. Public goodsÕ attractiveness and migrations By Jean J., GABSZEWICZ; Salome, GVETADZE; Didier, LAUSSEL; Patrice, PIERETTI
  5. Tax burden by economic function A comparison for the EU Member States By De Laet, Jean-Pierre; Wöhlbier, Florian
  6. Fiscal Federalism in Germany: Stabilization and Redistribution Before and After Unification By Hepp, Ralf; von Hagen, Jürgen
  7. Tax Treaty Abuse: Is Canada responding effectively? By Geoffrey T. Loomer
  8. Are small business owners more successful in avoiding taxes: Evidence from Sweden By Hansson, Åsa
  9. Iowa’s Historic Preservation and Cultural and Entertainment District Tax Credit Program Evaluation Study By Jin, Zhong; Michael, Lipsman
  10. Reputation and Ownership of Public Goods By Maija Halonen-Akatwijuka; Evagelos Pafilis
  11. The Silk Road: Tax Competition among Nation States By Kaz Miyagiwa
  12. Sizing the Government By De Witte, Kristof; Moesen, Wim

  1. By: Jonathan C. Rork (Andrew Young School of Policy Studies - Georgia State University); Gary A. Wagner (University of Arkansas at Little Rock)
    Abstract: One challenge states face in designing an income tax system is deciding how to treat non-resident earners. Numerous states have entered into reciprocity agreements with other states that exclude non-residents’ income from the tax base. These agreements provide a unique opportunity to explore the nature of state tax competition. We demonstrate that not only do reciprocity agreements dampen competition over income taxes, but the states that enact agreements also exhibit decreased levels of competition over other tax bases. This suggests that reciprocity agreements are a credible vehicle for states to act cooperatively and avoid a potential race to the bottom.
    Keywords: Spatial econometrics, interjurisdictional competition, state taxation, reciprocity.
    JEL: H7 R5
    Date: 2009
    Abstract: Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensifies countriesÕ tax reaction functions
    Keywords: H25; H77; H39
    Date: 2008–12–05
  3. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons. This paper considers a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and the low-ability type, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component, i.e., a component that is larger for the high-ability than for the low-ability type. Moreover, leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen.<p>
    Keywords: Optimal taxation; redistribution; public goods; relative consumption; status; positional goods
    JEL: D62 H21 H23 H41
    Date: 2009–04–21
  4. By: Jean J., GABSZEWICZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Salome, GVETADZE; Didier, LAUSSEL; Patrice, PIERETTI
    Abstract: The aim of this paper is to develop a dynamic model of migrations, in which migration is driven by size asymmetries between countries and by the relative preferences of consumers between private consumption and consumption of public goods. The dynamic trajectories heavily depend on the degree of attractiveness for public goods. We show that monotone migrations require sufficiently strong preferences for public goods, and can only be sustained from the small of the large countries. We identify the threshold value of the public goodsÕ intensity of preferences guaranteeing the survival of the small country. For weaker preference intensities, oscillating migrations may rise, but they finally converge to situation where both countries are of equal size
    Keywords: Migration; public goods; income tax
    JEL: H
    Date: 2008–12–04
  5. By: De Laet, Jean-Pierre; Wöhlbier, Florian
    Abstract: Policy makers as well as taxpayers are interested in comparing the tax burden in their countries with others, particularly given the wide variations in taxation levels and policies. In order to assess the heterogeneous national tax systems on a fully comparable basis, it is essential to have a unified statistical framework. This paper presents key trends in the tax burden in the Member States of the European Union, based on the European Commission's report 'Taxation trends in the European Union' The main focus lies on analysing the tax burden by economic function (i.e. consumption, labour and capital). The paper presents the methodology that is applied in order to allocate the tax revenue of the different taxes to the economic functions. Moreover, we present measures for the average effective tax burden on different types of income or activities, the so-called implicit tax rates. Results of the calculations are presented looking both at differences between Member States and trends over time.
    Keywords: tax burden; tax indicators; effective tax rates
    JEL: H20 E00 H71
    Date: 2008–12–01
  6. By: Hepp, Ralf; von Hagen, Jürgen
    Abstract: We provide empirical estimates of the risk-sharing and redistributive properties of the German federal fiscal system based on data from 1970 until 2006, with special attention to the effects of German unification. We find that tax revenue sharing between the states and the federal government and the fiscal equalization mechanism (Länderfinanzausgleich) together reduce differences in per-capita state incomes by 36.9 percent during period 1970 to 1994. After the full integration of East German states into the mechanism in 1995, the redistributive effects increase slightly to about 38.6 percent. With respect to the insurance effect of the German fiscal system, our results indicate that the federal fiscal system offsets 47 percent of an asymmetric shock to state per-capita incomes. This effect has significantly decreased after the inclusion of the East German states in 1995. Furthermore, we find that the German fiscal system provides almost perfect insurance for state government budgets against asymmetric revenue shocks; also, its redistributive effect with regard to the tax resources available to state governments is very strong.
    Keywords: Equalization; Fiscal Federalism; Regional Redistribution; Regional Risksharing
    JEL: E63 F42 H77
    Date: 2009–04
  7. By: Geoffrey T. Loomer (Oxford University Centre for Business Taxation)
    Abstract: This paper explores the means by which tax authorities worldwide seek to strengthen their tax treaties, through safeguards of varying nature and scope, in order to identify and prevent what they consider to be abuse of such treaties. These means of challenge may be grouped under two headings: purposive approaches to treaty interpretation, particularly with respect to the terms 'person', 'resident' and 'beneficial ownership'; and broader responses to unacceptable tax avoidance, specifically reliance on treaty anti-abuse principles and domestic anti-avoidance rules. The Canadian response is evinced by two recent cases in which the government unsuccessfully challenged 'treaty shopping' arrangements, MIL (Investments) SA v Canada and Prevost Car Inc v Canada. Building on the existing literature regarding tax treaty shopping and other forms of tax treaty abuse, this work seeks not only to describe and explain the responses to treaty abuse but to make a critical inquiry into the essence of such abuse, particularly as it appears to be viewed by the Canadian revenue authorities. It is argued that the Canadian response to tax treaty abuse is inadequate, largely because it conflates multiple approaches and fails to address a key concern: the existence or lack of genuine economic establishment in the treaty state. The paper concludes with some suggestions for fashioning a more coherent and intellectually honest response to tax treaty abuse.
    Date: 2009
  8. By: Hansson, Åsa (Department of Economics, Lund University)
    Abstract: It is commonly argued that high tax rates motivate individuals to start a business as it is easier to avoid and evade taxes if self-employed compared to employed. If this is the case we would expect small business owners to be more responsive to tax rate changes than employees. This study investigates how responsive existing small business owners are to tax rate changes by estimating the elasticities of taxable income, gross income and reported income from business ventures for small business owners and contrast them to corresponding elasticities for employees. This is done by using a particularly rich Swedish data set and the 1990/91 Swedish tax reform as a “natural experiment”. I find that small business owners’ taxable income is about twice as responsive to tax rate changes than employees’. When it comes to reported income from business ventures the difference between small business owners and employees are even greater. For gross disposable income, however, business owners are not more responsive. This is consistent with the hypothesis that small business owners have greater means to shift income between different income sources in order to avoid taxation.
    Keywords: Taxable income elasticities; tax avoidance
    JEL: H24 H26 J24
    Date: 2009–04–19
  9. By: Jin, Zhong; Michael, Lipsman
    Abstract: Executive Summary: Iowa introduced the Historic Preservation and Cultural and Entertainment District (HPCED) Tax Credit Program in 2000. The program allows property owners or developers to claim tax credits equal to 25 percent of qualified rehabilitation costs for eligible historic properties in Iowa. In tax year 2002, the tax credit was made transferable and refundable at a discounted amount. In tax year 2005, the cap of the tax credit was increased to $6.5 million per year. In tax year 2007, the cap of the tax credit was increased to $10 million for fiscal year 2008, $15 million for fiscal year 2009, and $20 million for fiscal year 2010 and subsequent years. In addition, the tax credit was made fully refundable in 2007. The major findings of the study are:...
    Keywords: Investment Tax Credit; Tax Policy; State and Local Governement; Public Subsidy
    JEL: D62 H0 H43 H71 R33
    Date: 2009–03–30
  10. By: Maija Halonen-Akatwijuka; Evagelos Pafilis
    Abstract: This paper analyzes the effect of reputation on ownership of public goods in the Besley and Ghatak (2001) model. We show that in the dynamic setup the optimal ownership depends not only on the relative valuations for the public good but also on technology (elasticity of investment). We also show that joint ownership of public good can be optimal in both the static and repeated game but it emerges for a different parameter range. Our results are applied to the case of return of cultural goods to their country of origin.
    Keywords: public goods, property rights, reputation, joint ownership, cultural goods
    JEL: D23 H11 H41 L14 L33 Z1
    Date: 2009–01
  11. By: Kaz Miyagiwa
    Abstract: Many commodities, before reaching their final destinations, are transshipped through several nations, each having independent authorities to tax commodities in transit. However, we show that such gmiddleh nations may be unable to exercise monopoly power over commodities in transit and all the rents are captured by the country where the commodities are produced and the country where there are markets.
    Keywords: international tax competition, international trade, economic geography, repeated game
    JEL: D4 F1 H2 L13
    Date: 2009–04
  12. By: De Witte, Kristof; Moesen, Wim
    Abstract: Is there such a thing as an optimal government size? We investigate by the non-parametric Data Envelopment Analysis (DEA) the so-called `Armey curve' which claims an inverted U-shaped relationship between government size and economic performance. The DEA scores are linked to control variables as initial per capita income, openness, population density, urbanization, country size and family size. For 23 OECD-countries we estimate the country specific efficiency scores, which reveal the extent to which a country uses excess public resources to achieve the observed growth rate of GDP.
    Keywords: Data Envelopment Analysis; Government size; Public sector performance; Armey-curve.
    JEL: H10 H21
    Date: 2009–04–22

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