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on Public Economics |
| By: | Aron Kiss (National Bank of Hungary) |
| Abstract: | An agreement about a lower bound for admissible tax rates can reduce the equilibrium tax rate (and thus welfare) in tax competition among fully symmetric countries. This is shown in an infinitely repeated game where the stage game describes the standard tax competition model with source-based taxes and symmetric countries. Repeated interaction may allow countries to sustain cooperation through implicit contracts. Lower bounds on tax rates ('minimum taxes') restrict the ability of countries to punish deviators. This makes cooperation harder to sustain. The introduction of a lower bound on feasible tax rates may thus harm all countries. |
| Keywords: | tax competition, tax harmonization, minimum tax, tax floor, repeated games |
| JEL: | F21 H87 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1116&r=pbe |
| By: | Jesse Edgerton |
| Abstract: | This paper develops and tests the hypothesis that accounting rules mitigate the impact of tax policy on investment decisions by obscuring the timing of tax payments. I model a firm that maximizes a discounted weighted average of after-tax cash flows and accounting profits. The cost of capital and the impact of tax incentives for investment both depend on the weight placed on accounting profits. I estimate this weight by comparing the effectiveness of tax incentives that do and do not affect accounting profits. Investment tax credits, which do affect accounting profits, have more impact on investment than accelerated depreciation, which does not. This difference in estimated impact is not obviously driven by discounting, cash flow effects, or measurement error. Results thus suggest that the tax burden on corporate capital could be lower than we would otherwise estimate, and accelerated depreciation provisions are less effective than they otherwise would be. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2011-20&r=pbe |
| By: | Alfredo Marvão Pereira (Department of Economics, The College of William and Mary); Rui M. Pereira (Department of Economics, University of the Algarve) |
| Abstract: | This paper explores the capacity for environmental reform to reduce CO2 emissions, stimulate economic performance, and promote fiscal sustainability. Simulation results suggest that reforms based on CO2 taxation stimulate GDP when tax revenues are used to promote private or public investment and employment when used to finance reductions in personal income taxation or firms' social security contributions. More generally, reforms allow for reductions in the costs of climate policy, a weaker realization of the second dividend. In addition, several reforms lead to reductions in public debt, the realization of a third dividend. When political constraints on reducing public spending are considered, however, this third dividend only materializes when revenues finance public investment or reductions in the firms' social security contributions. Overall, our results suggest that low growth and high public debt need not be regarded as hindrances for environmental fiscal reform but can actually be seen as catalysts. |
| Keywords: | Carbon Tax, Environmental Fiscal Reform, Economic Growth, Budgetary Consolidation,Dynamic General Equilibrium, Endogenous Growth |
| JEL: | D58 H54 H63 Q48 Q54 |
| Date: | 2011–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:cwm:wpaper:114&r=pbe |
| By: | Thomas A. Garrett |
| Abstract: | The tax incidence of different price-point instant lottery games is examined. Theoretical reasons exist for expecting higher-priced instant lottery games to be less regressive than lower-priced instant games. Using game-level data from a sample of states, the empirical results show that higher-priced instant games are significantly less regressive than lower-priced games. For some games, regressivity is rejected in favor of proportionality. In addition, the tax incidence of individual instant games is quite different than that for all instant games combined. This suggests that large differences in individual instant-game tax incidence are masked if aggregated sales data are used. |
| Keywords: | Gambling industry ; Taxation |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2011-010&r=pbe |
| By: | Ernst, Christof; Spengel, Christoph |
| Abstract: | The focus of this paper is on effects from tax incentives for research and development inputs (R&D) and corporate income tax on business R&D and patenting behaviour. First, we provide a theoretical discussion of tax planning with R&D and intellectual property (IP) ownership. Further, we employ firm-specific micro-data on patent applications of European corporations at the European Patent Office to test reactions on changes in R&D tax incentives and corporate tax burden. We find a positive impact of R&D tax incentives and a negative impact of the statutory corporate income tax rate on patenting. R&D incentives rather influence the tendency to invest in R&D, whereas the tax burden rather influences the scale of R&D investment and the count of patent applications. -- |
| Keywords: | Patent,R&D,Tax Incentives,Taxation,EU |
| JEL: | H25 H26 O30 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11024&r=pbe |
| By: | Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Lenka Šastná (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | We examine a symmetric two-district setting with spillovers of local public spending where a spill-in from the foreign spending is not a substitute, but a complement to domestic spending. Specifically, we assume production of two district-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and cooperative centralization for different spillovers, complementarities and cost-division rules, and control for the effects of strategic delegation and the feasibility of voluntary contributions to the input in the foreign district. We find that centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three novelties: In the absence of transfers, welfare in decentralization increases in spillovers, strategic delegation in decentralization improves welfare, and centralized provision may be non-monotonic in spillovers. |
| Keywords: | Spillover, Spill-in, Strategic complementarity, Decentralization theorem |
| JEL: | H41 H73 H77 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2011_13&r=pbe |
| By: | Kneller, Richard; Misch, Florian |
| Abstract: | This paper reviews the existing evidence on the effects of tax reforms on output levels and growth over the short and long run from different strands of the literature. It develops and applies criteria to evaluate the usefulness of ex-post estimates to predict the effects of tax reforms ex-ante. These include whether the estimated policy change can be replicated in practice and whether the estimates are reliable. Based on these criteria we present detailed tables summarizing and comparing ex-post estimates of the effects of tax reforms. Overall, our review suggests that at least the direction of the long-run growth effects can be predicted with a reasonable degree of certainty. However, our review also suggests that depending on the tax change, trade-offs between short-run stabilization and long-run growth may arise and that more research on this question is needed. -- |
| Keywords: | Tax Reforms,Tax Policy,Aggregate Growth,Tax Multipliers,Fiscal Policy |
| JEL: | E62 H20 O20 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11029&r=pbe |
| By: | Gary Clyde Hufbauer (Peterson Institute for International Economics); Woan Foong Wong (Peterson Institute for International Economics) |
| Abstract: | The US budget outlook has the makings of a fiscal disaster, but it is the beginning of economic challenges, not the end. Among other challenges, a tax system that discourages business and erodes American competitiveness ranks high. The United States lags well behind other advanced countries, not to mention China, in reforming its corporate tax regime. Instead, over past decades, the United States has sought to make up through a high statutory tax rate, especially on multinational corporations (MNCs), what has been lost though a host of exemptions, deductions, and credits. The combination of a high corporate tax rate and its worldwide reach makes the United States—despite all its positive attributes—one of the least favored locations from the standpoint of business taxation. Unlike all other major economies, which limit corporate taxation to income earned with the national boundaries (territorial taxation), the United States hobbles its MNCs by taxing their worldwide income. Hufbauer and Wong caution that solutions to the looming fiscal crisis could make a bad corporate tax system even worse. To forestall this outcome, they advocate four measures: (1) meaningful caps on the growth of entitlement spending (Medicare, Medicaid and Social Security); (2) a national consumption tax to narrow the federal budget deficit to around 2.2 percent of GDP and to arrest the rise of public debt at about 88 percent of GDP; (3) a deep cut in the statutory corporate tax rate to 20 percent or lower, coupled with the elimination of exemptions, deductions and credits so as to broaden the tax base; and (4) the explicit adoption of a territorial system for taxing business income. The authors recognize that a national consumption tax is deeply unpopular with many Americans. However, the United States remains the only OECD country (and one of the very few countries in the world) that has not implemented a national consumption tax to fund its ambitious social programs and military commitments. Unless these programs and commitments can be downsized to a degree seldom seen in history, circumstances may compel the United States to choose between a competitive economy and a national consumption tax. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb11-2&r=pbe |
| By: | Neubäumer, Renate (University of Koblenz-Landau) |
| Abstract: | The aim of this discussion paper is not only to activate a debate over the interrelation between rising income inequality and economic policy measures but also to initiate comparative research in several European countries and North America. It discusses the consequences of a rising income inequality and its implications for state activities and economic policy. Using a simple model it becomes evident that an increasing income inequality leads to higher government spending, as a share of Gross Domestic Product, though the state does not take over more responsibilities. It also leads to a higher tax share though rates of taxation are not increased. This forces economic politicians to act. If they want to prevent an increase of these shares in order not to fall behind in the international competition, they must accept a rising public debt and/or must move away from socially accepted value judgments about "social standards", the degree of redistribution by taxes and/or an "adequate" supply of public goods. This might result in disenchantment with politics. |
| Keywords: | economic policy, income inequality, macroeconomic key figures, state activities |
| JEL: | E6 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5651&r=pbe |
| By: | Francisco Martínez Mora |
| Abstract: | This paper studies a Tiebout model with two school districts, housing markets and peer effects to re-evaluate the optimality properties of the allocation of households to districts induced by head and income taxes. The main novel results reveal that head taxes are not superior to income taxes and that the indirect redistribution implied by income taxation is not necessarily at odds with location optimality or associated to welfare losses. Many combinations of head taxes differentiated by household type can sustain the optimal outcome as an equilibrium. While this may not be possible using differentiated income taxes, a combination of non-differentiated ones and differentiated head taxes levied on the residents of the rich district can lead to the optimal outcome and effect significant local redistribution. In turn, non-differentiated head taxes are suboptimal (unless optimality requires one of the districts to be type-homogeneous) and a combination of uniform income taxes and head taxes levied on the rich district’s population can do as well as them. Moreover, non-differentiated income taxes may generate smaller welfare losses than their lump-sum counterpart, a result which clashes with the benefit view of head taxes. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2011-07&r=pbe |
| By: | Schanz, Deborah; Theßeling, Holger |
| Abstract: | For more than 50 years, researchers around the world have been searching for a solution to Blacks famous 'dividend-puzzle'. However, despite tremendous efforts in different fields of economics, the influence of taxation on the distribution policy of firms has remained elusive and is still subject to extensive debate amongst scholars, professionals and politicians alike. In this paper, we try to shed some light on the discussion by presenting new empirical evidence from German tax reforms. Using a sample containing all firms listed at the Frankfurt stock exchange in the years from 1993 to 2009, we find robust evidence, that the switch from a split-rate tax system with full imputation to a shareholder relief system in 2002 and the change to a flat tax system in 2009 led to significant changes in the payout behavior of German firms. In line with the 'traditional view' of dividend taxation, German decision-makers cut back their dividend payments in response to the reduced advantageousness of dividends in comparison to capital gains after the reform. -- |
| Keywords: | Dividends,Taxation,Payout Policy |
| JEL: | G30 G35 H24 H25 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:115&r=pbe |
| By: | Marco Bassetto; Leslie McGranahan |
| Abstract: | In this paper, we investigate the relationship between public capital spending and population dynamics at the state level. Empirically, we document two robust facts. First, states with faster population growth do not spend more (per capita) to accommodate the needs of their growing population. Second, states whose population is more likely to leave do tend to spend more per capita than states with low gross emigration rates. To interpret these facts, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence by shifting some of the costs and benefits of public projects to future residents. The magnitude of the empirical response of capital spending to mobility is at the upper end of what can be explained by the theory with a plausible calibration. In the model, more mobile voters favor more spending because the maturity of states' debt is very long term and costs are shifted into the future more than benefits. |
| JEL: | E62 H41 H71 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16970&r=pbe |
| By: | Jan Hanousek; Evzen Kocenda |
| Abstract: | In this paper we analyze the dynamics of public investment and public finance in new members of the European Union, and also how these sectors were affected by changes in economic freedom and corruption. When we assess the role of regulation and corruption on public investment, we find that improvements in economic freedom tend to be associated with decreases in public investment, while reductions in corruption produce effects going in both directions. Similarly, we show that increases in public investment are often linked with decreases as well as increases in corruption. In terms of public finance we detect mostly improvement in debt when there is less economic regulation, while results for a deficit are less conclusive. On the other hand, improvements in the corruption environment are mostly associated with decreases in the deficit as well as debt. As a general rule that follows from our results, steps aimed at reducing corruption and the degree of economic regulation should lead towards improvements in the fiscal position in most of the new EU countries. |
| Keywords: | public finance, public investment, economic freedom, corruption, EU convergence and integration, macroeconomic policy, fiscal reforms, new EU members |
| JEL: | E61 E62 F42 H50 H60 O11 |
| Date: | 2010–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2010-1006&r=pbe |
| By: | Tonin, Mirco (University of Southampton) |
| Abstract: | This paper examines the interaction between minimum wage legislation and tax evasion by employed labor. I develop a model in which firms and workers may agree to report less than the true amount of earnings to the fiscal authorities. I show that introducing a minimum wage creates a spike in the distribution of declared earnings and induces higher compliance by some agents, thus reducing their disposable income. The comparison of food consumption and of the consumption-income gap before and after the massive minimum wage hike that took place in Hungary in 2001 reveals that households who appeared to benefit from the hike actually experienced a drop compared to similar but unaffected households, thus supporting the prediction of the theory. |
| Keywords: | minimum wage, tax evasion, spike, Hungary |
| JEL: | J38 H24 H26 H32 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5660&r=pbe |