nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒06‒10
nine papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms By Ruud de Mooij; Michael P. Devereux
  2. Is there a majority to support a capital tax cut? By François Gourio
  3. Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland By Pietola, Kyosti; Myyra, Sami; Pouta, Eija
  4. How much of Federalism in the European Union By František Turnovec
  5. Making rules credible: Divided government and political budget cycles By Jorge M. Streb; Gustavo F. Torrens
  6. Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform By François Gourio; Jianjun Miao
  7. Public Sector Rationing and Private Sector Selection By Simona Grassi; Ching-to Albert Ma
  8. Multi-Level Regulatory Governance: Policies, Institutions and Tools for Regulatory Quality and Policy Coherence By Delia Rodrigo; Lorenzo Allio; Pedro Andres-Amo
  9. Are Two Tax Rates Better Than One? By Felix R. FitzRoy; Jim Y. Jin

  1. By: Ruud de Mooij (CPB Netherlands); Michael P. Devereux (Oxford University Centre for Business Taxation)
    Abstract: This paper explores the economic implications of an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT) and a combination of the two in the EU. We illustrate the key trade-offs in designing ACE and CBIT in the presence of tax distortions at various decision margins of firms, such as its financial structure, investment, profit allocation and discrete location. Using an applied general equilibrium model for Europe, we quantitatively assess the effects of ACE, CBIT and combined reforms in EU countries. The results suggest that ACE is welfare improving as long as corporate tax rates are not used to cover the cost of base narrowing. CBIT typically reduces welfare by exacerbating marginal investment distortions. When governments adjust statutory corporate tax rates to balance their budget, however, CBIT reforms become more attractive while ACE reforms are welfare reducing in a number of countries. European coordination of reforms mitigates fiscal spillovers within the EU and renders ACE reforms more, and CBIT reforms less, attractive for welfare. A combination of ACE and CBIT reforms can be designed to be revenue neutral and welfare improving through smaller financial distortions.
    Keywords: European Union, corporate taxation
    JEL: H25
    Date: 2009–05
  2. By: François Gourio (Boston University, Department of Economics)
    Abstract: A capital income tax cut must in general be financed by increasing other taxes, and thus will have redistributive effects. This paper studies analytically the redistribution implied by a capital income tax cut in the Ramsey-Cass-Koopmans neoclassical growth model when agents differ in wealth and human capital and markets are frictionless. A few parameters a¤ect the efficiency benefits and redistributive costs of capital taxation, and determine the set of agents who are in favor of a capital income tax cut. For plausible parameter values, a majority would lose from the tax cut, i.e. high capital taxes may be politically sustainable.
    Date: 2008–09
  3. By: Pietola, Kyosti; Myyra, Sami; Pouta, Eija
    Keywords: capital gains, taxes, land, trade, fiscal effects, Agricultural Finance, Financial Economics, Land Economics/Use,
    Date: 2009–05
  4. By: František Turnovec (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The European Union (EU) is not de jure a federation, but after 50 years of institutional evolution it possesses attributes of a federal state. One can conclude that EU is “something between” federation and intergovernmental organization. If we measure “something between” by interval [0, 1], where 0 means fully intergovernmental organization and 1 means de facto federation, the questions are: What is the location of recent EU on this interval? What tendency of development of this location can be observed in time? In this paper we propose such a measure based on game-theoretical model of European Union decision making system.
    Keywords: Co-decision procedure, committee system, consultation procedure, European Union decision making, federation, intergovernmental organization, qualified majority, power indices, simple voting committee
    JEL: C71 D72 H77
    Date: 2009–06
  5. By: Jorge M. Streb; Gustavo F. Torrens
    Abstract: Political budget cycles (PBCs) result from the credibility problems that office-motivated incumbents face under asymmetric information, due to their temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit debt, crucial for aggregate PBCs to take place. Since the budget process under separation of powers typically requires that the legislature authorize new debt, divided government can make these fisscal rules credible. Commitment is undermined either by unified government or by imperfect compliance with the budget law. When divided government affects efficiency, voters must trade off electoral distortions and government competence.
    Keywords: political budget cycles, discretion, uniffied government, rules, credibility, separation of powers, divided government
    Date: 2009–04
  6. By: François Gourio (Department of Economics, Boston University); Jianjun Miao (Department of Economics, Boston University)
    Abstract: To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent.
    Keywords: firm heterogeneity, finance regime, dividend tax reform, general equilibrium
    JEL: E22 E62 G31 G35 H32
    Date: 2008–11
  7. By: Simona Grassi (European University Institute, Max Weber Programme); Ching-to Albert Ma (Department of Economics, Boston University)
    Abstract: We study the interaction between a public sector and a private sector in the provision of a private good. Under a limited budget, the public supplier uses a rationing policy. A private ?rm may supply the good to those consumers who are rationed by the public system. Consumers have di¤erent amounts of wealth, and costs of providing the good to them vary. We consider two information regimes: First, the public supplier observes only wealth information; second, the public supplier observes both wealth and cost information. The public supplier chooses a rationing policy based on its information; simultaneously, the private firm, observing only cost but not wealth information, chooses a pricing policy. In the first information regime, there is a continuum of equilibria; in each, rich consumers are rationed, and the private firm sells to these rationed consumers at high prices. In the second regime, there is a unique equilibrium. The public supplier allocates the good to consumers according to a cost-e¤ectiveness rule. In the equilibrium, rationed consumers have high costs relative to the bene?t, and the rationing rule is the same as if the private market were inactive.
    Date: 2009–01
  8. By: Delia Rodrigo; Lorenzo Allio; Pedro Andres-Amo
    Abstract: Multi-level regulatory governance is becoming a priority in many OECD countries. High quality regulation at a certain level of government can be compromised by poor regulatory policies and practices at other levels, impacting negatively on the performance of economies and on business and citizens’ activities. The most common problems that affect the relationship between the public and the private sectors are duplication, overlapping responsibility and low quality. These affect public service delivery, citizen’s perception, business services and activities, as well as investment and trade. More positively, following certain principles and good practices for high quality regulation in a coherent way as well as facilitating co-ordination among regulatory institutions at different levels of government can bring improvements to the regulatory system as a whole.
    Date: 2009–06
  9. By: Felix R. FitzRoy; Jim Y. Jin
    Abstract: Should two–band income taxes be progressive given a general income distribution? We provide a negative answer under utilitarian and max-min welfare functions. While this result clarifies some ambiguities in the literature, it does not rule out progressive taxes in general. If we maximize total or weighted utility of the poor, as often intended by the society, progressive taxes can be justified, especially when the ‘rich’ are very rich. Under these objectives we obtain new necessary conditions for progressive taxes, which only depend on aggregate features of income distributions. The validity of these conditions is examined using plausible income distributions.
    Keywords: optimal taxation, progressive tax, utilitarian, max-min, help the poor.
    JEL: H20 D40
    Date: 2009–05

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