nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒05‒30
five papers chosen by
Keunjae Lee
Pusan National University

  1. Explaining Property Tax Collections in Developing Countries: The Case of Latin America By Jorge Martinez-Vazquez; Cristian Sepúlveda
  2. What's My METR? Marginal Effective Tax Rates Are Down - But Not for Everyone: The Ontario Case By Alexandre Laurin; Finn Poschmann
  3. Economic crisis and taxation in Europe By Luigi, Bernardi
  4. Fiscal policy and debt dynamics in developing countries By Ilzetzki, Ethan
  5. Taxes, agglomeration rents and location decision of firms By Karen Crabbe; Karolien De Bruyne

  1. By: Jorge Martinez-Vazquez (International Studies Program. Andrew Young School of Policy Studies, Georgia State University); Cristian Sepúlveda (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This paper analyzes the problem of collecting property taxes in fiscally decentralized developing economies. The property tax is arguably the most important source of own revenues for local governments around the world, and economists generally agree that, although imperfect, the property tax is a good local tax. In practice, however, the property tax does not always become a productive revenue source and local governments do not gain the fiscal autonomy required to realize the benefits of fiscal decentralization. This problem is rather common among developing economies and particularly severe in Latin America. One of the main reasons for the poor tax performance of Latin American countries seems to be the lack of administrative capacity at the local level. This problem is notably aggravated, we argue, by a deficient design of the fiscal decentralization system. We also identify the main determinants of property tax performance in Latin American countries, and provide guidance for future reforms in the region.
    Date: 2011–05–10
  2. By: Alexandre Laurin (C.D. Howe Institute); Finn Poschmann (C.D. Howe Institute)
    Abstract: The marginal effective tax rate (METR) on personal income, explain the authors, measures the impact, on take-home pay, of federal and provincial income taxes combined with the impact of reductions and clawbacks of income-tested tax credits and benefits as individual or family income rises. These income-tested credits and benefits mostly target financial support to low- and middle-income families with children, or to low-income seniors. As their income rises past prescribed thresholds, clawbacks and reductions begin, raising the METR on each dollar of incremental income above the threshold. Policymakers interested in keeping down METRs overall, say the authors, should consider reinvigorating the personal income tax relief imperative, rather than implementing or expanding targeted benefits that make general tax relief more difficult to achieve.
    Keywords: Fiscal and Tax Competitiveness, marginal effective tax rate (METR), Province of Ontario
    JEL: E61 E64
    Date: 2011–04
  3. By: Luigi, Bernardi
    Abstract: The recent economic crisis and taxation in the advanced countries - especially in the European nations - are linked in several ways. The tax systems may have exacerbated the crisis, and this raises the question of the need for a better system of taxation in certain economic sectors, especially in the banking sector. It is worthwhile examining the various different effects of the crisis on different kinds of tax revenue, as a result of both the automatic stabilizers and the discretional measures which were adopted to sustain the economies. We are going to show that while the former have had a relatively substantial impact, the latter have been of negligible effect. The paper initially offers a critical overview of the just mentioned topics. The European countries are now faced with a difficult trade - off between further tax reductions to sustain economic recovery, and the raising of taxes in order to help stabilize public budgets and debts. Broadly speaking, the most suggested solution consists in the idea of raising taxes whilst making them more growth - friendly. With this in mind, the paper then reconsiders and compares the latest, authoritative proposals for tax reform which in recent years have been proposed not only by international economic organizations, but also by studies in the field. The longstanding principles of broadening the tax base, reducing rates and simplifying the tax system still appear to be at the order of the day. The idea of shifting the tax burden away from labour and capital, whilst increasing taxes on consumption, properties and environmental resources, has also received large support. It is again suggested that efficiency - induced neutrality should characterize the design of the main taxes. While those political factors that have impeded reforms in recent years are still at work, we should remember that tax systems also have other targets than that of favouring neutrality - efficiency, and that in some countries (including Italy) the most urgent, radical reform required is the downsizing of an abnormal level of tax evasion.
    Keywords: Economic Crisis; Taxation; Europe
    JEL: H20 H25 H24
    Date: 2011–05–18
  4. By: Ilzetzki, Ethan
    Abstract: Using a new tax database for 28 countries and a variety of econometric methods, this paper contributes to the debate on the effects of fiscal policy on economic activity in a number of ways. The analysis finds that tax cuts have a stimulative effect on economic growth in developing countries. Lowering the personal income tax rate by 1 percentage point, or cutting revenues by 1 gross domestic product of gross domestic product increases gross domestic product by 0.3-0.4 percent on impact and 0.8 percent in the long run. The author finds that cuts in personal income taxes are more effective in stimulating growth than cuts in corporate or valued added tax rates. The author incorporates debt dynamics into a fiscal vector autoregression model for a number of developing countries. Existing estimates of the effects of fiscal policy on growth use linear time-series methods, which may assess the effects of fiscal policy along a debt-path that is unsustainable. Incorporating the non-linear relationship between government expenditure, taxes, and debt alters estimates of the impact of fiscal policy on gross domestic product in several countries. In Brazil, for example, conventional time-series methods may overstate the effects of fiscal policy on gross domestic product, by ignoring the detrimental effects of debt accumulation.
    Keywords: Debt Markets,Taxation&Subsidies,Emerging Markets,Economic Theory&Research,Tax Law
    Date: 2011–05–01
  5. By: Karen Crabbe; Karolien De Bruyne
    Abstract: The goal of this paper is to analyse the impact of interactions between tax rates and agglomeration rents on location decisions of firms within Belgium. In the theoretical literature it is argued that both location determinants may weaken each other’s impact. Using the number of new firms at the sector level for 43 Belgian districts, we show that local effective tax rates either have no or a negative impact on location decisions. Moreover, both types of agglomeration rents in a district are important for location decisions. The presence of firms in a district attracts new firms, while the presence of firms in the same sector deters firm entry due to competition. However, the interaction effect between taxes and agglomeration rents on firm entry is significant. We show that a higher effective tax rate in a district weakens the positive impact of the agglomeration rents on location decisions of firms.
    Date: 2011

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