nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒09‒05
twelve papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Institutional Reform:Improving the Effectiveness of Policy Delivery By Lara, Carlos Icaza; Pezzini, Mario; Villarreal, Roberto; Garcilazo, Enrique; Davies, Andrew
  2. Local Government Taxation in Pakistan By Roy Bahl; Musharraf Cyan
  3. West Bengal: Fiscal Decentralization to Rural Governments: Analysis and Reform Options By Roy Bahl; Geeta Sethi; Sally Wallace
  4. Planning and Policy Issues Raised by the Structure of the U.S. International Tax Rules By Daniel N. Shaviro
  5. Taxing Risky Investment By Michael P. Devereux
  6. Common corporate tax base (CCTB) and effective tax burdens in the EU member states By Oestreicher, Andreas; Reister, Timo; Spengel, Christoph
  7. The Direct Incidence of Corporate Income Tax on Wages By Wiji Arulampalam; Michael P Devereux; Giorgia Maffini
  8. Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform By Denvil Duncan; Klara Sabirianova Peter
  9. Value Added Taxes, Chain Effects and Informality By Aureo de Paula; Jose A. Scheinkman
  10. Pakistan Tax Policy Report: Tapping Tax Bases for Development By Jorge Martinez-Vazquez; Kaspar Richter
  11. EU-type carbon emissions trade and the distributional impact of overlapping emissions taxes By Thomas Eichner; Rüdiger Pethig
  12. Avoidance Policies – A New Conceptual Framework By David Ulph

  1. By: Lara, Carlos Icaza; Pezzini, Mario; Villarreal, Roberto; Garcilazo, Enrique; Davies, Andrew
    Abstract: The characteristics, assets and economic performance of Chile’s regions are particularly diverse, and their potential for growth will largely depend on how public policies are adapted to their diversity and integrate their different synergies, attributes and assets. Enhancing the productivity and competitiveness of specific regions and sectors requires agile, responsive institutional arrangements that can make targeted efforts to improve the quality of specific public investments and services. This chapter considers the multi-level governance system required to support a better match between public policies and territorial needs in the search for better regional performance.
    Keywords: public policy; diversity; institutional arrangements; multi-level governance; regionalism.
    JEL: H77 H7
    Date: 2009–06
  2. By: Roy Bahl (Andrew Young School of Policy Studies, Georgia State University); Musharraf Cyan (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: The purpose of this paper is to evaluate the current practice of local government taxation in Pakistan and to point the way toward structural reforms that are both more rational and more in step with Pakistan’s vision for its fiscal decentralization. The analysis here is restricted to sub provincial governments, i.e., districts, TMA’s and union councils but with a decided emphasis on the former two. We do this by examining the current practice, and by drawing on international comparisons and “best practices” as laid out in the theory of fiscal federalism.
    Keywords: Local Government Taxation, Pakistan, Fiscal Decentralization
    Date: 2009–08–01
  3. By: Roy Bahl (Andrew Young School of Policy Studies, Georgia State University); Geeta Sethi (The World Bank); Sally Wallace (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This report is about the fiscal performance of rural local governments in the state of West Bengal. Specifically, our goal is to develop a comprehensive fiscal information system for all rural local governments, and to use these data to valuate the intergovernmental finance structure in the state. The work is of significant policy importance, given the need to implement programs to respond to the constitutional amendments mandating fiscal decentralization, and to support central and state government initiatives to use the Panchayat Raj Institutions (PRIs) as an important part of its poverty alleviation strategy. A more immediate need in West Bengal (and other states as well) is to support the work of the State Finance Commissions to better integrate rural local governments into the intergovernmental fiscal framework. To date, there has not been a comprehensive review of rural local government finance in West Bengal.
    Keywords: West Bengal, Fiscal Decentralization, Decentralization
    Date: 2009–07–01
  4. By: Daniel N. Shaviro (NYU Law School)
    Abstract: The U.S. international income tax rules, which govern the U.S. tax treatment of multinational companies, employ five key concepts: corporate residence, source of income, foreign tax credits with limits, deferral, and subpart F. This paper, which is a draft version of chapter 2 of a book in progress entitled Fixing the U.S. International Tax Rules, explores the tax planning and tax policy issues raised in practice by each of these concepts, focusing in particular on how, why, to what extent, and with what consequences each of them runs into difficulty in practice.
    Keywords: tax law, corporate taxation, international taxation, corporate residence, source, foreign tax credits, controlled foreign corporations, deferral, subpart F
    JEL: H20 H21 H25
    Date: 2009
  5. By: Michael P. Devereux (Centre for Business Taxation, Said Business School, University of Oxford)
    Abstract: This paper re-examines the impact of consumption and capital income taxes on (a) the incentive to undertake risky investment and (b) the revenue generated from such taxes. It challenges a well-known claim in the literature that a capital income tax with full loss offset can leave incentives to invest "basically unaffected" because the tax liability is offset by a reduction in the post-tax risk of the investment. Instead, it argues that such a tax would have a significantly negative impact on the incentive to invest.
    JEL: H25 H32 E22
    Date: 2009
  6. By: Oestreicher, Andreas; Reister, Timo; Spengel, Christoph
    Abstract: The article assesses the impact of a Common Corporate Tax Base (CCTB) as promoted by the European Commission and the related Working Groups on the effective tax burdens of companies in all 27 EU member states. The results shall help to evaluate the economic consequences of introducing a harmonized set of tax accounting rules for EU-based companies. The proposals for a CCTB covered here include depreciation on intangibles, machinery, buildings, furniture and fixture, simplified valuation of inventories, determination of production costs for stocks, treatment of costs for R&D as part of production costs, provisions for future pension payments, provisions for legal obligations, avoidance of double taxation regarding dividend income, and loss relief. The proposed options for a CCTB are applied for average EU-27 corporations of different size as well as for model companies belonging to different economic sectors.
    Keywords: European Taxation,Tax Harmonization,Tax Accounting,Effective Tax Burdens
    JEL: H20 H21 H25 K34
    Date: 2009
  7. By: Wiji Arulampalam (University of Warwick and Oxford University Centre for Business Taxation); Michael P Devereux (Oxford University Centre for Business Taxation); Giorgia Maffini (University of Warwick and Oxford University Centre for Business Taxation)
    Abstract: We examine how far taxes on corporate income are directly shifted onto the workforce. We use data on 55,082 companies located in nine European countries over the period 1996–2003. We identify this direct shifting through cross-company variation in tax liabilities, conditional on value added per employee. Our central estimate is that the long run elasticity of the wage bill with respect to taxation is -0.093. Evaluated at the median, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 75 cents. We find only weak evidence of a difference for multinational companies.
    Date: 2009
  8. By: Denvil Duncan (Andrew Young School of Policy Studies, Georgia State University); Klara Sabirianova Peter (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: We exploit the exogenous change in marginal tax rates created by the Russian flat tax reform of 2001 to identify the effect of taxes on labor supply of males and females. We apply the weighted difference-in-difference regression approach and instrumental variables to the labor supply function estimated on individual panel data. The mean regression results indicate that the tax reform led to a statistically significant increase in male hours of work but had no effect on that of females. However, we find a positive response to tax changes at both tails of the female hour distribution. We also find that the reform increased the probability of finding a job among both males and females. Despite significant variation in individual responses, the aggregate labor supply elasticities are trivial and suggest that reform-induced changes in labor supply were an unlikely explanation for the amplified personal income tax revenues that followed the reform.
    Keywords: labor supply, personal income tax, flat tax, labor supply elasticity, difference-in-difference, regression discontinuity, wage endogeneity, employment participation, Russia, transition.
    Date: 2009–06–01
  9. By: Aureo de Paula (Department of Economics, University of Pennsylvania); Jose A. Scheinkman (Department of Economics, University of Pennsylvania)
    Abstract: This paper investigates determinants of informal economic activity. We present an equilibrium model of informality and test its implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. A novel theoretical contribution in this model is the role of value added taxes in transmitting informality. It predicts that the informality of a firm is correlated to the informality of firms from which it buys or sells. The model also implies that higher tolerance for informal firms in one production stage increases tax avoidance in downstream and upstream stages. Empirical analysis shows that, in fact, various measures of formality of suppliers and purchasers (and its enforcement) are correlated with the formality of a firm. Even more interestingly, when we look at sectors where Brazilian firms are not subject to the credit system of value added tax, but instead the value added tax is applied at some stage of production at a rate that is estimated by the tax authorities, this chain effect vanishes.
    Keywords: Informal Sector,VAT,Tax Avoidance
    JEL: H2 H3 K4
    Date: 2009–08–01
  10. By: Jorge Martinez-Vazquez (International Studies Program. Andrew Young School of Policy Studies, Georgia State University); Kaspar Richter
    Abstract: Pakistan’s economic development is once again threatened by macroeconomic imbalances. Broadly speaking, high growth in the 1960s was followed by low growth in the 1970s, and high growth in the 1980s by low growth in the 1990s, as macroeconomic vulnerabilities derailed development. Supported by a favorable global environment, Pakistan returned to a strong development record for much of this decade. Growth accelerated and fiscal and social indicators improved. But as in the past, the gains proved unsustainable, as economic policies adjusted too little and too late to a deterioration in the external environment. The looming crisis is threatening to undo much of the recent development progress.
    Keywords: Pakistan, Tax policy, Tax Bases
    Date: 2009–08–01
  11. By: Thomas Eichner; Rüdiger Pethig
    Abstract: The European Union fulfills its emissions reductions commitments by means of an emissions trading scheme covering some part of each member state’s economy and by national emissions control in the rest of their economies. The member states also levy energy/emissions taxes overlapping with the trading scheme. Restricting our focus on cost-effective policies, this paper investigates the distributive consequences of increasing the overlapping emissions tax that is uniform across countries. For quasi-linear utility functions and for a class of parametric utility and production functions emissions tax increases turn out to be exactly offset by permit price reductions. As a consequence permit-exporting [permit-importing] countries lose [gain] from an increase in the emissions tax. These results are not general, however. By means of a numerical example we show that export-import reversals and welfare reversals are possible.
    Keywords: emissions taxes, emissions trading, international trade
    JEL: H21 H22 Q56
    Date: 2009
  12. By: David Ulph
    Abstract: This paper develops a general theoretical framework within which a heterogeneous group taxpayers confront a market that supplies a variety of schemes for reducing tax liability, and uses this framework to explore the impact of a wide range of anti-avoidance policies. Schemes differ in their legal effectiveness and hence in the risks to which they expose taxpayers - risks which go beyond the risk of audit considered in the conventional literature on evasion. Given the individual taxpayer’s circumstances, the prices charged for the schemes and the policy environment, the model predicts (i) whether or not any given taxpayer will acquire a scheme, and (ii) if they do so, which type of scheme they will acquire. The paper then analyses how these decisions, and hence the tax gap, are influenced by four generic types of policy: * Disclosure – earlier information leading to faster closure of loopholes; * Penalties – introduction of penalties for failed avoidance; * Policy Design – fundamental policy changes that design out opportunities for avoidance; * Product Register - the introduction of GAARs or mini-GAARs that give greater clarity about how different types of scheme will be treated. The paper shows that when considering the indirect/behavioural effects of policies on the tax gap it is important to recognise that these operate on two different margins. First policies will have deterrence effects – their impact on the quantum of taxpayers choosing to acquire different types schemes as distinct to acquiring no scheme at all. There will be a range of such deterrence effects reflecting the range of schemes available in the market. But secondly, since different schemes generate different tax gaps, policies will also have switching effects as they induce taxpayers who previously acquired one type of scheme to acquire another. The first three types of policy generate positive deterrence effects but differ in the switching effects they produce. The fourth type of policy produces mixed deterrence effects.
    Keywords: Tax Avoidance; Supply Side; Risks; Tax Schemes; Disclosure; Guidance; Penalties; Tax Policy
    JEL: H26 H30
    Date: 2009–08

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