nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒07‒03
sixteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. The role of international public goods in tax cooperation By Kammas, Pantelis; Philippopoulos, Apostolis
  2. Subnational Taxes in Developing Countries: The Way Forward By Richard.M. Bird
  3. Taxation trends in the European Union: 2009 edition By Florian Woehlbier; Marco Fantini; Tatjana Lapunova; Beata Heimann; Gaetan Nicodeme; Katri Kosonen; Doris Prammer; Maya Hristova; Milan Pein; Thomas Hemmelgarn; Werner Vanborren; Alessandro Lupi; Monika Wozowczyk
  4. Strategic fiscal interaction among OECD countries By Kammas, Pantelis
  5. Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy By Hibbs, Douglas A.
  6. Heterogeneous Firms, 'Profit Shifting' FDI and International Tax Competition By Sebastian Krautheim; Tim Schmidt-Eisenlohr
  7. Tax reform, delocation and heterogeneous firms By Richard Baldwin; Toshihiro Okubo
  8. The dynamic adjustment of local government budgets: Does Spain Behave differently? By Albert Sole-Olle; Pilar Sorribas-Navarro
  9. Global Reform of Personal Income Taxation, 1981-2005: Evidence from 189 Countries By Sabirianova Peter, Klara; Buttrick, Steve; Duncan, Denvil
  10. Income Tax Flattening: Does It Help to Reduce the Shadow Economy? By Sabirianova Peter, Klara
  11. Taxes in Europe Database By European Commission ? DG TAXUD
  12. Do Multinationals or Domestic Firms Face Higher Effective Tax Rates? By Kevin S. Markle; Douglas Shackelford
  13. Efficiency of Public Goods Provision in Space By Travis Warziniack
  14. Paying for the liberal state: the rise of public finance in nineteenth century Europe By Jose Luis Cardoso; Pedro Lains
  15. Constitutions, Regulations, and Taxes: Contradictions of Different Aspects of Decentralization By Libman, Alexander
  16. Public Money for Public Goods: Winners and Losers from CAP Reform By Zahrnt, Valentin

  1. By: Kammas, Pantelis; Philippopoulos, Apostolis
    Abstract: We provide a quantitative assessment of the welfare cost of tax competition or, equivalently, the welfare benefit of international tax policy cooperation. We use a simple multi-country general equilibrium model of a world economy, in which there are two types of cross-country spillovers: the first one is generated by international capital mobility and the second by the presence of an international public good. In the absence of international public goods, although welfare in the non-cooperative case is typically lower than in the cooperative case, the welfare difference is negligible quantitatively. Things change drastically, both quantitatively and qualitatively, once we introduce international public goods. Now, there can be big benefits from cooperation and welfare effects cease to be monotonic.
    Keywords: Capital mobility; Tax competition; Public goods; Welfare
    JEL: H4 H2
    Date: 2009–05–15
  2. By: Richard.M. Bird
    Abstract: It is critical to emphasize that intergovernmental fiscal relations must be thought of as a system and that all the pieces in the system must fit together if decentralization is to work properly. Various theories and experiences strongly suggest that if fiscal decentralization is to produce sustainable benefits in developing countries, then subnational governments require subnational taxes than the present system. Moreover, in developing countries there are potentially sound and productive taxes that subnational governments could use. This paper reviews the literature and evidence on the most appropriate structure of regional and local taxes in developing countries. [IIB WP no.16]
    Keywords: subnational taxes; developing countries; subnational governments; fiscal decentralization; inter governmental fiscal relations; local tax; regional tax; real property taxes; excise taxes; personal income taxes; payroll taxes; consumption taxes; business taxes.
    Date: 2009
  3. By: Florian Woehlbier (European Commission); Marco Fantini (European Commission); Tatjana Lapunova (European Commission); Beata Heimann (European Commission); Gaetan Nicodeme (European Commission); Katri Kosonen (European Commission); Doris Prammer (European Commission); Maya Hristova (European Commission); Milan Pein (European Commission); Thomas Hemmelgarn (European Commission); Werner Vanborren (European Commission); Alessandro Lupi (European Commission); Monika Wozowczyk (European Commission)
    Abstract: Taxation trends in the European Union: 2009 covers the development of taxation in all 27 Members of the European Union and Norway in a comparable format since 1995. The report is organised as follows: Part I offers an overview of taxation in Europe, describing the trends in the total tax ratio, the structure of revenues by tax type, the distribution of revenues amongst government levels, and the main developments in the rates of the personal and corporate income tax. Part II focuses on taxation of consumption, labour, and capital, as well as on environmental taxation. Part III consists of 28 Country Chapters illustrating, for each Member State (and Norway), the revenue trends and supplying a summary description of the tax system. This chapter outlines the main results from Parts I and II.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2009–06
  4. By: Kammas, Pantelis
    Abstract: This paper investigates whether OECD countries compete with each other for mobile factors by using various fiscal (tax-spending) policy instruments. We use a panel dataset of 20 OECD countries over the 1982-2000 period. There is evidence that international capital inflows (FDI) are affected by fiscal policy at home and abroad. Also, there is evidence of fiscal competition for mobile factors which takes place via capital tax rates. More precisely, we find that domestic capital tax rates react: (i) positively to changes in capital tax rates and (ii) negatively to changes in public investment spending in neighbouring countries. In contrast, evidence of such a strategic interdependence over public investment spending decisions is not established.
    Keywords: capital mobility; tax competition; welfare
    JEL: H4 H2
    Date: 2009–03–24
  5. By: Hibbs, Douglas A.
    Abstract: How do government-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private…firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to …firm-specific thresholds of tax toleration that are decisively affected by quality of governance in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model concerning the determinants of…firmstax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys.
    Keywords: tax toleration; tax compliance; tax evasion; corruption; quality of government; institutions; unofficial production; black economy; shadow economy; underground economy; micro political economy of firm behavior
    JEL: D21 H0 H26
    Date: 2009–06–18
  6. By: Sebastian Krautheim; Tim Schmidt-Eisenlohr
    Abstract: We develop a stylized model of international tax competition between a large country and a tax haven. In the large country, firms in a monopolistically competitive industry generate positive profits which can be taxed by the government. Firms have heterogeneous productivity levels and can choose to undertake `profit shifting' FDI in order to benefit from lower tax rates abroad. We find that economies with a low degree of firm heterogeneity and a high degree of monopolistic market power are less affected by international tax competition. They face lower out flows of the tax base and can set higher tax rates.
    Keywords: heterogeneous firms, monopolistic competition, tax competition, tax havens
    JEL: F23 H25 H87
    Date: 2009
  7. By: Richard Baldwin; Toshihiro Okubo
    Abstract: The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important thus allowing us to study the relocation effects of taxes that vary according to firm size. We show that allowing for heterogeneity permits a given tax scheme to have an endogenously different effect on the location decision of small and big firms, with the biggest firms being endogenously more likely to relocate in reaction to high taxes. We show that a reform which flattens the tax-firm-size profile can raise tax revenue without inducing any relocation.
    JEL: H32 H73 R12
    Date: 2009–06
  8. By: Albert Sole-Olle; Pilar Sorribas-Navarro (Universitat de Barcelona)
    Abstract: The aim of this paper is to analyze whether Spanish municipalities adjust in response to budget shocks and (if so) which elements of the budget they are more likely to adjust. The methodology we use to answer these questions is a vector error-correction model (VECM), estimated with data from a panel of Spanish municipalities during the period 1988-2006. Our results confirm, first, that municipalities do indeed make adjustments in response to fiscal shocks (i.e., the deficit is stationary in the long run). Second, we find that most of the adjustment to a revenue shock is borne by the municipalities themselves as they proceed to cut expenditures, with a minor role being played by grant financing. By contrast, adjustments to expenditure shocks are shared on largely equal terms by the municipality through the raising of taxes and higher tiers of government through the raising of grants. These results suggest that the viability of the local finance system is feasible with different institutional arrangements.
    Keywords: fiscal adjustment, local government, intergovernmental transfers
    JEL: H77 H72 H70
    Date: 2009
  9. By: Sabirianova Peter, Klara (Georgia State University); Buttrick, Steve (Georgia State University); Duncan, Denvil (Georgia State University)
    Abstract: In this paper we use a panel of 189 countries to describe the salient trends that have emerged in national personal income tax systems spanning the twenty five year period from 1981 to 2005. Using complete national income tax schedules, we calculate actual average and marginal tax rates at different income levels as well as time-varying measures of structural progressivity and complexity of national tax systems. We show that frequent alterations of tax structures have reduced tax rates at higher levels of income and diminished the overall progressivity and complexity of national tax systems; however, the degree of this change varies considerably across countries. We also find that the relationship between the tax rates and revenue is positive for high income countries; however, the strength of the relationship declines with weaker institutions and lower levels of economic development.
    Keywords: personal income tax, marginal rate, average rate, tax complexity, progressivity, flat tax, revenue, global trends
    JEL: C8 E62 H2 H87 N10 O1
    Date: 2009–06
  10. By: Sabirianova Peter, Klara (Georgia State University)
    Abstract: This paper examines the effect of global transition to simpler, flatter income tax systems on the size of the shadow economy. By offering a new estimation framework, the paper revives the traditional electricity consumption approach to measuring the shadow economy. It overcomes the limitations of previous literature by using a new functional form, better quality data, a larger sample of 170 countries, a longer time span of 25 years, a panel framework, and instrumental variables. Our analysis provides strong evidence of a positive relationship between income tax rates and the size of the shadow economy. The effects of structural progressivity and complexity of national tax schedules are also found to be positive and statistically significant. These positive effects are reinforced when tax changes are accompanied by improving government services and strengthening the legal system. The flat tax is estimated to reduce the shadow economy in the short run, but this effect diminishes and disappears in the long run.
    Keywords: shadow economy, tax evasion, personal income tax, corporate income tax, flat tax, structural progressivity, tax complexity, electricity approach, institutions
    JEL: D73 H1 J3 J4 O1 P2
    Date: 2009–06
  11. By: European Commission ? DG TAXUD
    Abstract: The "Taxes in Europe" database is the European Commission's on-line information tool covering the main taxes in force in the EU Member States. Access is free for all users. The system contains information on around 650 taxes, as provided to the European Commission by the national authorities. The "Taxes in Europe" database contains, for each individual tax, information on its legal basis, assessment base, main exemptions, applicable rate(s), economic and statistical classification, as well as the revenue generated by it. The information is listed in the form of a downloadable file. The "Taxes in Europe" database is not meant to constitute a reference for legal purposes. The "Taxes in Europe" database covers the following types of taxes: All main taxes in revenue terms. These include notably personal income taxes, corporate income taxes, value added taxes, excise duties; The main social security contributions. A list of minor taxes yielding less than 0.1% of GDP (not covered by the database) can be found here. The database does NOT cover information on Customs duties and tariffs. This type of information can be found in the customs tariff database TARIC.
    Keywords: European Union, taxation, database
    JEL: H23 H24 H25 H27 H71
    Date: 2009–06
  12. By: Kevin S. Markle; Douglas Shackelford
    Abstract: To our knowledge, this paper provides the most comprehensive analysis of firm-level corporate income tax expenses to date. We use publicly available financial statement information to estimate firm-level effective tax rates (ETRs) for 10,642 corporations from 85 countries from 1988 to 2007. We find that multinationals and domestic-only companies face similar ETRs. We also find that, on average, ETRs declined by seven percentage points or 20% over the period. German, Japanese, Australian and Canadian decreases were large. American, British, and French declines were more modest. Nonetheless, because ETRs were falling worldwide, the ordinal rank from high-tax countries to low-tax countries changed little. Japanese firms always faced the highest ETRs. ETRs for tax havens and countries from the Middle East and Asia (ignoring Japan) were always lower than those for the U.S. and European countries. These findings should provide some empirical underpinning for ongoing policy debates about the taxation of multinational profits.
    JEL: F23 H25 K34 M41
    Date: 2009–06
  13. By: Travis Warziniack (University of Heidelberg, Department of Economics)
    Abstract: This article incorporates a political decision process into an urban land use model to predict the likely location of a public good. It fills an important gap in the literature by modeling the endogenous location of open space. The article compares open space decisions made under a majority-rules voting scheme with welfare-improving criterion and finds households tied to a location in space compete against each other for public goods located nearer them. Significant differences emerge between the two decision criteria, indicating that requiring referenda for open space decisions is likely to lead to inefficient outcomes. Specifically, many open space votes are likely to fail that would lead to welfare improvements, and any open space decisions that do pass will require amenities larger than needed to achieve the social optimum. The more dispersed and large the population, the larger is the gap between the socially efficient level and the level needed for a public referendum to pass.
    Keywords: organizational slack, antecedents, dispositional requirements, resources
    JEL: D23 L29 M10
    Date: 2009–06
  14. By: Jose Luis Cardoso; Pedro Lains
    Abstract: Public finance is a major feature of the development of modern European societies, and it is at the heart of the definition of the nature of political regimes. Public finance is also a most relevant issue in the understanding of the constraints and possibilities of economic development. This paper is about the rise and development of taxation systems, expenditure programs, and dept regimes in Europe from the early nineteenth century to the beginning of World War I. Its main purpose is to describe and explain the process by which financial resources were raised and managed. We analyse nine countries or empires that are considered highly representative of the widest European experience on the matter and discuss whether there are any common patterns in the way the different European states responded to the need for raising additional resources to pay for the new tasks they were performing
    Keywords: Nineteenth Century Europe, Governments, Public finances, Taxation,
    JEL: G20 N23 N43 O16 O23
    Date: 2009–06
  15. By: Libman, Alexander
    Abstract: The paper confronts different aspects of decentralization: fiscal decentralization, post-constitutional regulatory decentralization, and constitutional decentralization – using a single dataset from Russian Federation of the Yeltsin period as a politically asymmetric country. It finds virtually no correlation between different decentralization aspects; moreover, three processes of devolution appearing in the same country at the same time seem to be driven by different (though partly overlapping) forces. Hence, a specific aspect of decentralization is hardly able to serve as a proxy for another one or for the overall decentralization process.
    Keywords: constitutions; deregulation; decentralization; fiscal decentralization; administrative decentralization; devolution
    JEL: H77 H7
    Date: 2009–06
  16. By: Zahrnt, Valentin
    Abstract: To attain fundamental reform of the post-2013 Common Agricultural Policy (CAP), a serious debate is needed in 2009/10 that prepares the decisions to be taken in 2011/12. The paper contributes to this debate, first, by arguing that the Single Farm Payment should not become the mainstay of the future CAP but be gradually phased out. Second, it proposes that the existing two-pillar structure of the CAP should be replaced by a public goods pillar (containing all efficient policies to be preserved) and a discretionary pillar (encompassing all inefficient policies to be removed over time). This would give member states flexibility in how they phase out inefficient policies, while the EU reform agenda would not be clogged with the contentious details of their progressive removal. Third, the paper assesses the criteria likely to guide future allocation of CAP payments, such as GDP per capita, agricultural and forest areas, and areas with Natura 2000 status. Fourth, it estimates member statesâ share in total CAP payments under different post-2013 scenarios. This reveals surprising differences between the negotiating positions that countries traditionally adopt and the payment receipts they can expect from reform.
    Keywords: CAP, subsidies, budget review, Agricultural and Food Policy, Political Economy,
    Date: 2009–06

This nep-pbe issue is ©2009 by Oliver Budzinski. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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