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on Public Economics |
| By: | Charlot, S.; Paty, S.; Piguet, V. |
| Abstract: | The main purpose of this paper is to assess the effects of fiscal cooperation on local taxation in a decentralized country, using the French experience in urban municipalities. We estimate a model of tax setting for local business tax using spatial and dynamic econometric techniques, for the period 1993-2003 and an unbalanced data set. As predicted by the theory, we find that reducing the number of municipalities is likely to limit tax competition and, as a consequence, increase local business tax rates. |
| Keywords: | FISCAL COOPERATION;TAX COMPETITION;VERTICAL EXTERNALITIES;LOCAL BUSINESS TAX |
| JEL: | H2 H3 H7 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gbl:wpaper:201202&r=pbe |
| By: | Fossen, Frank; Simmler, Martin |
| Abstract: | Tax competition for the mobile factor capital has led to a trend in many countries to levy lower taxes on interest income, often introducing differential taxation between interest and business income. In this study, we analyze the effect of such differential taxation on the debt ratio of firms. We exploit a 2009 tax reform in Germany as a quasi-experiment, which introduced a flat final withholding tax and opened a gap of 18 percentage points between the tax rate on income from unincorporated businesses and the new lower tax rate on interest income. We apply a regression adjusted semi-parametric difference-in-difference matching strategy based on firm level panel data. In addition, we implement a more structural approach with a tax rate differential, taking into account its endogeneity by using instrumental variables. The results indicate that firms increase their leverage when the tax rate on interest income decreases, albeit to a small degree. -- |
| Keywords: | income taxation,capital taxation,financial structure,leverage,matching |
| JEL: | H25 H24 G32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20124&r=pbe |
| By: | Bruno Martorano (UNICEF Innocenti Research Centre, Florence) |
| Abstract: | In 2007, the Uruguayan government implemented a new tax reform which introduced a new progressive labour income tax, a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This paper presents an evaluation of the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for the years 2006 and 2009. Using a Difference-in-Differences technique, the paper shows that the new tax system lowered inequality by 2 Gini points without producing any discernible disincentive effect. These results contrast with the conclusions of supply side-economics and suggest that suitably designed reforms of direct taxation can simultaneously achieve the goals of equity and efficiency. |
| Keywords: | Tax reform, tax incidence, income distribution, efficiency, matching estimators |
| JEL: | C14 D63 H21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2012_06.rdf&r=pbe |
| By: | Ximing Yue; Jing Xu |
| Abstract: | This paper investigates the statistical measurement of income distribution and evaluates the income redistribution effect of income tax system in Japan, using National Survey of Family Income and Expenditure 1984-2004. This paper finds first that income inequality has been widening over time, especially in the young (age 39 or less) and middle (age 40-59) groups, second that tax role of income redistribution has been weaken since 1984, and third that the income redistribution effect by taxation is strong in the old (age 60 or above) group because distribution of before tax income is already very unequal among them. |
| JEL: | D3 H2 H24 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd11-230&r=pbe |
| By: | Paul VAN ROMPUY |
| Abstract: | This paper investigates the relationship between fiscal decentralization and budgetary performance in a sample of 28 OECD countries over the period 1995-2008, characterized by a consolidation of their average debt ratio. Two empirical questions are addressed: first, did expenditure and revenue decentralization contribute to aggregate subnational discipline and did cooperative agreements between the central and subcentral layers of government have a positive impact on the budgetary performance of the latter? And second, did tax autonomy of regions and local governments guarantee fiscal discipline and to what extent did subnational fiscal rules contribute to this objective? The empirical analysis proceeds in two stages; the first stage concerns aggregate subnational fiscal balances, whereas disaggregated deficits at the regional and local level are investigated in the second stage. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces12.02&r=pbe |
| By: | Richard M. Bird (University of Toronto) |
| Abstract: | This paper reviews the evolution and current state of subnational taxation in five large emerging countries: Brazil, Russia, India, China, and Nigeria – BRIC plus one. As these case studies show, intergovernmental fiscal relations in any country are inevitably both path-dependent and context-sensitive. In India and Brazil, for example, subnational governments already have a significant degree of fiscal autonomy in terms of being able to set some key tax rates. In both countries, however, substantial attention still must be paid to improving the general consumption taxes that are the main source of regional government revenues as well as the property taxes on which local governments mainly depend. Although Nigeria, like India and Brazil, is a federation, its fiscal system depends so heavily on oil revenues that almost all political attention has been focused on securing a bigger share of these revenues. Both China and Russia have made a number of important changes in the direction of centralizing rather than decentralizing effective control over subnational taxes. In both countries the key issue is the extent to which fiscal decentralization is to be accompanied by any significant political decentralization. At the present time, in neither China nor Russia is it clear that the central authorities are willing to permit subnational governments much autonomy in this respect. |
| Keywords: | state and local taxation, intergovernmental fiscal relations, Brazil, Russia, India, China, Nigeria |
| Date: | 2012–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1201&r=pbe |
| By: | Ximing Yue; Jing Xu; Qian Liu |
| Abstract: | A new personal income tax reform implemented in China on September 1, 2011. The main content of this amendment is as follows: The first is to raise the pre-tax salary deduction standard from RMB2000/month to 3500/month; the second is to adjust the tax rate structure of salary, reducing from the former 9-grade extra progressive tax rate to 7 grades and adjusting the rate and the ranges of income; This paper researched the income redistribution effect after personal income tax reform. We first decomposed the redistribution effect index of personal income tax by the composition of income according to the current personal income tax collection mode of sub-levied in China. The main analysis results can be summarized in two points: First, the level of the average effective tax rate is the main determinant of the income redistribution effects and progressive is secondary. Due to the reduction of the effective tax rate, the tax reform has weakened the redistribution effects of personal income tax which already very weak in the former tax system. Second, the overall progressivity index of personal income tax was inverted U-shaped with the improvement of deduction in salary income. Coincidentally, the deduction determined by this reform (RMB3500/month) happens to be at the maximum of the inverted U-shaped,so the higher deduction would weaken the progressive. |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd11-229&r=pbe |
| By: | Gustavo Canavire-Bacarreza (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | This paper contributes to the existing literature on the determinants of fiscal decentralization by motivating theoretically and exploring in depth the empirical relevance that geography has as determinant of fiscal decentralization. The relationship between decentralization and geography is based on the logic that more geographically diverse countries show greater heterogeneity among their citizens, including their preferences and needs for public goods and services provision. Communications and physical distance are also a very important issue and play a key role on the effect of geography over time. The theoretical model builds on the work by Arzaghi and Henderson (2002) and Panizza (1999). For the empirical estimation we use a panel data set for approximately 91 countries for the period 1960-2005. Physical geography is measured along several dimensions including elevation, land area, and climate. We construct a geographical fragmentation index and test its effect on fiscal decentralization. In addition, we interact the geographical fragmentation index with time variant infrastructure variables, in order to test the effect that infrastructure and communications have on the relationship between geography and fiscal decentralization. For robustness, we construct Gini coefficients for in-country elevation and climate. We find a positive and strong correlation between geographical factors and fiscal decentralization. We also find that while the development of infrastructure (in transportation, communications, etc.) tends to reduce the effect of geography on decentralization, this effect is rather small and mostly statistically insignificant, meaning that the impact of geography survives over time. The additional value added of this strategy is that geography and its interaction with infrastructure development may be used as an instrument for decentralization in future econometric estimations, where decentralization is used as an explanatory variable but it may be suspected to be endogenous to the economic process being studied (economic growth, political instability, macroeconomic stability, income distribution, etc.) |
| Keywords: | revenue mobilization, fiscal decentralization, Peru |
| Date: | 2012–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1211&r=pbe |
| By: | Germà Bel (Universitat de Barcelona & GiM-IREA) |
| Date: | 2012–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1215&r=pbe |
| By: | Mildred E. Warner (Cornell University) |
| Date: | 2012–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1212&r=pbe |
| By: | Ximing Yue; Jing Xu |
| Abstract: | The purpose of this paper is to evaluate the redistributive effects of the personal income tax (PIT). Information on the PIT reported in the household survey substantially understates the real tax liability borne by households. The redistributive effects of the personal income tax would be undervalued if the information was used. In order to correct the underestimation of the PIT by non-reporting in our dataset, we apply the tax schedule and impute the tax liability for the individuals in our sample according to the components of their earned income. This imputed tax liability is used to calculate the MT index, the most commonly used measure of the redistributive effects of taxes and governmental subsidies, and to decompose the MT index into the effects of horizontal equity and vertical equity. The MT index and its decomposition show that the personal income tax does reduce inequality, but the effect is small and negligible. The low average personal income tax rate is the main reason why it fails to contribute more to improving inequality. |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd11-228&r=pbe |
| By: | Luiz de Mello (OECD Economics Department); Santiago Lago-Peñas (REDE. IEB, and University of Vigo) |
| Abstract: | Local governments often set up inter-municipal consortia to provide public services jointly, rather than individually. The main benefits of joint provision include the potential for improved cost-effectiveness arising from gains from economies of scale and the internalisation of costs and/or benefits of provision, which could otherwise spill over inter-municipal borders and discourage provision. To shed further light on this issue, this paper tests for the presence of scale and spillover effects in local government provision and estimates the determinants of the probability of local government participation in inter-municipal consortia in Brazil and Spain. Empirical evidence suggests that in some cases smaller jurisdictions operate at sub-optimal scale and are indeed more likely than their larger counterparts to participate in inter-municipal consortia. In the case of Brazil, governance arrangements between the municipalities and the state governments and/or private-sector providers, but not the federal government, are also associated with a higher probability of participation in inter-municipal consortia, suggesting the presence of “participation spillovers” among governance arrangements. |
| Keywords: | inter-municipal cooperation, local public finance, Brazil, Spain, federalism, probit |
| Date: | 2012–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1218&r=pbe |
| By: | Hikaru Ogawa (Graduate School of Economics, Nagoya University (Japan)); Jun Oshiro (Graduate School of Economics, Osaka University (Japan)); Yasuhiro Sato (Graduate School of Economics, Osaka University (Japan)) |
| Abstract: | This paper investigates which of the two countries \resource-rich or resourcepoor\ gains from capital market integration and capital tax competition. We develop a framework involving vertical linkages via resource-based inputs as well as international fiscal linkages between resource-rich and resource-poor countries. Our analysis shows that capital market integration causes capital flows from resourcepoor countries to resource-rich countries and thus improves production efficiency and global welfare. However, such gains accrue only to resource-poor countries, and capital mobility might even hurt resource-rich countries. In response to capital flows, the governments of both resource-rich and resource-poor countries have an incentive to tax capital. Such taxations would enable resource-rich countries to exploit their efficiency gains through capital market integration and become winners in the tax game. |
| Keywords: | capital market integration, natural resource, resource curse, tax competition |
| JEL: | F21 H20 H77 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1205&r=pbe |
| By: | Michael A. Nelson (University of Akron) |
| Abstract: | Using a large cross-country data set of developing and developed countries it is found that less fragmented municipal government structures are associated with more honest (less corrupt) behavior by government officials. The evidence is strongest for high-income countries. Corruption is measured various ways, including perceived corruption by citizens and experienced corruption by business managers. Fragmentation is defined as the average “size” of a municipality, measured alternatively in terms of geographic area or population served. A similar conclusion is drawn for other “bottom-tier” governmental units, at the same level as municipalities or one tier below, although the results are less strong statistically. Overall, these findings suggest that some caution should be exercised before adopting more fragmented local government structures as a strategy to promote good governance. |
| Date: | 2012–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1210&r=pbe |
| By: | Iris Claus (Asian Development Bank); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); VIoleta Vulovic (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University) |
| Date: | 2012–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1213&r=pbe |
| By: | Dash, Bharatee Bhusana (National Institute of Public Finance and Policy); Raja, Angara V. (Dept. of Economics, University of Hyderabad) |
| Abstract: | This study examines whether the allocation of public expenditures of the Indian states are significantly influenced by government specific political characteristics. Three types of government specific characteristics are considered forms of governments, ideology of the government, and the electoral cycle. A number of hypotheses are designed to link these characteristics with expenditure allocation. The hypotheses are tested using a panel dataset of 14 Indian states spread over 27 fiscal years, from 1980-81 to 2006-07. The overall findings of the study suggest that the relationship between expenditure allocation and political determinants across the Indian states validate the proposed hypotheses even after controlling for the traditional and other unobservable determinants. These findings are robust to various forms of sensitivity analyses. |
| Keywords: | Political determinants ; Expenditure ; Political parties ; Interest groups ; Indian states |
| JEL: | H0 H1 H2 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:12/101&r=pbe |
| By: | Richard M. Bird (University of Toronto) |
| Abstract: | We have learned a great deal about taxation and development over the last half-century. However, we still have much to learn. Even the best research answers to particular questions have usually turned out to be extremely difficult to apply in practice. Over the past fifty years what might be called the standard approach to tax and development has undergone a number of major model changes over the years but no magical fiscal medicine suitable for all has been found. In this brief paper I first attempt to provide a perspective on a half century of work and then to note some questions that seem to call for more research. I emphasize that even the best research is only one of many inputs in shaping public policy and suggest that to some extent the task we face is perhaps not so much to improve research on tax and development as it is to improve how we market what we learn to those who can, if they wish, put the knowledge to use. What is needed is less a non-existent ‘universal fix’ than a fiscal medicine kit containing a variety of remedies and treatments that may help developing countries to cope with the wide variety of fiscal problems that arise at different times and often in different ways. |
| Keywords: | taxation; development; technical assistance; history of thought |
| Date: | 2012–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1202&r=pbe |
| By: | Raymundo Campos (Center for Economic Studies, El Colegio de Mexico); Gerado Esquivel (Center for Economic Studies, El Colegio de Mexico); Nora Lustig (Department of Economics, Tulane University) |
| Abstract: | Inequality in Mexico rose between 1989 and 1994 and declined between 1994 and 2010. We examine the role of market forces (demand and supply of labour by skill), institutional factors (minimum wages and unionization rate), and public policy (cash transfers) in explaining changes in inequality. We apply the "re-centered influence function" method to decompose changes in hourly wages into characteristics and returns. The main driver is changes in returns. Returns rose (1989-1994) due to institutional factors and labour demand. Returns declined (1994-2006) due to changes in supply and-to a lesser extent-in demand; institutional factors were not relevant. Government transfers contributed to the decline in inequality, especially after 2000. |
| Keywords: | inequality, wages, disposable income, labour markets, Mexico |
| JEL: | D31 J20 J31 O54 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1201&r=pbe |
| By: | Afridi, Farzana (Indian Statistical Institute); Li, Sherry Xin (University of Texas at Dallas); Ren, Yufei (Union College) |
| Abstract: | We conduct an experimental study to investigate the causal impact of social identity on individuals' response to economic incentives. We focus on China's household registration (hukou) system which favors urban residents and discriminates against rural residents in resource allocation. Our results indicate that making individuals' hukou status salient and public significantly reduces the performance of rural migrant students on an incentivized cognitive task by 10 percent, which leads to a significant leftward shift of their earnings distribution. The results demonstrate the impact of institutionally imposed social identity on individuals' intrinsic response to incentives, and consequently on widening income inequality. |
| Keywords: | social identity, inequality, field experiment, hukou, China |
| JEL: | C93 D03 O15 P36 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6417&r=pbe |