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on Public Economics |
| By: | Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo |
| Abstract: | We use micro data from the U.S. Internal Revenue Service to document how Federal Income tax liabilities vary with income, marital status and the number of dependents. We report facts on the distributions of average taxes, properties of the joint distributions of taxes paid and income, and discuss how taxes are affected by marital status and the number of children. We also provide multiple parametric estimates of tax functions for use in applied work in macroeconomics and public finance. |
| Keywords: | Households; Tax Progressivity; Taxation |
| JEL: | E62 H24 H31 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9078&r=pbe |
| By: | Mireille Chiroleu-Assouline (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Mouez Fodha (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, LEO - Université d'Orléans) |
| Abstract: | European countries have increased their use of environmental tax instruments by designing new tax bases. But, many countries have to face the opposition of the public opinion, for fear of the distributive consequences of these environmental tax reforms. This paper sheds light on the distributive consequences of environmental tax policies when households are heterogeneous. The objective is to assess whether an environmental tax reform could be Pareto improving, when the revenue of the pollution tax is recycled by a change in the labor tax properties. We show that, whatever the degree of regressivity of the environmental tax alone, it is possible to design a recycling mechanism that renders the tax reform Pareto improving, by simultaneously decreasing the average rate of the wage tax and increasing its progressivity. |
| Keywords: | Environmental tax reform; heterogeneity; welfare analysis; tax progressivity |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00719762&r=pbe |
| By: | Atsushi Kawamoto (Policy Research Institute, the Ministry of Finance, Japan) |
| Abstract: | In this paper, the interrelationship between the capital tax policies of local governments is empirically investigated using a data set from Japan. Reaction functions of local governments, which relate their capital tax rates to those in competing governments and their characteristics, are estimated through both the instrumental variable method and maximum likelihood estimation. The results suggest that a positive relationship exists among local governments in Japan. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:mof:wpaper:ron238&r=pbe |
| By: | Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Blanca Moreno-Dodson (The World Bank); VIoleta Vulovic (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | The main focus of this paper is on the potential role that taxation and public expenditure policies play in general in affecting income distribution. We find that progressive personal income taxes and corporate income taxes reduce income inequality. The effect of corporate income taxes seems to be eroded away in open or globalized economies. We also generally find that general consumption taxes, excise taxes and customs duties have a negative impact on income distribution. On the expenditure side, we find that higher shares of GDP on social welfare, education, health and housing public expenditures have a positive impact on income distribution. |
| Keywords: | Tax Policy, Public Expenditures, Income Distribution, Tax Progressivity |
| Date: | 2012–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1225&r=pbe |
| By: | Brad, Anca Maria |
| Abstract: | The paper seeks to find the impact of tax policy on income and wealth redistribution, as well as its effects on welfare. Redistribution through transfers has a major contribution to reducing inequality and polarization of income. The fiscal reforms in present-day circumstances imply as outcome the so called “tax uniformity”, embedding income redistribution through budgetary mechanisms, an arrangement that greatly depends on the alternative chosen by the authorities for the distribution of tax burden among various categories of contributors. In Eastern European economies, under the absence of a sustainable economic growth and structural reforms, flat taxes can lead to polarization of income. The authors argue that if progressive rates are feasible in eastern countries, taxation reconsideration generates economic effects triggered by the change in tax burden and social effects triggered by a decrease in the unemployment, living conditions, education and labour. |
| Keywords: | tax policy; redistribution; flat tax; progressive rates; welfare state |
| JEL: | E62 D31 H20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40347&r=pbe |
| By: | Raffaella Basile; Bruno Chiarini; Elisabetta Marzano |
| Abstract: | This paper analyzes the effects of fiscal policy in Italy by employing a database containing two statistical novelties: quarterly fiscal variables on accrual basis and a time series estimate of tax evasion for the period 1981:1-2006:4. Following Revenue Agency suggestions, we use in a VECM the time series of the concealed VAT base as a proxy for the size of “unreported production”, and define a regular GDP measure constructed as GDP net of government expenditure and evaded VAT base. The results reveal that we cannot rely upon the estimates of fiscal policy multipliers in countries with a sizeable unreported production unless the dynamics of the hidden and regular components of the GDP are disentangled. Changes in public spending and the tax rate generate a reallocation from underground to the regular economy which contributes to obscure the spending and tax effect on total GDP. In this setup the spending multiplier shows large long-run effects, considerably stronger than those registered in a model with no attention paid to unreported production. The drop in regular output, after an increase in the effective tax rate, tends to be considerable after one year, producing long-lasting effects and a significant increase in unreported production and tax evasion. |
| Keywords: | Fiscal policy, VECM, fiscal multipliers, unreported GDP, tax ratio, effective tax rate. |
| JEL: | C32 E62 H26 H62 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:wp2012-1&r=pbe |
| By: | Santo Milasi (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | During the last thirty years most OECD countries have accumulated large public debts. The same period has been characterized by a considerable increase in the concentration of income at the top of the distribution and by substantial cuts to taxation imposed on high incomes. The paper argues that the concentration of income at the top, along with the decreasing taxation imposed on top incomes, may have affected OECD countries' fiscal performances in recent decades. Using a panel of 17 OECD countries between 1975 and 2005, the paper presents the first reported evidence of a positive relationship between the top 1 percent income share and budget deficits. Moreover, the disaggregated analysis of the budget components suggests that such result is due to a negative relationship between concentration of income at the top and budget revenues. |
| Keywords: | Budget Deficits, Budget Revenues, Income Inequality, Top Income Shares, Top Marginal Tax Rates |
| JEL: | D31 E62 H20 H62 |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:249&r=pbe |
| By: | Carolina Torres; Kirsti Mellbye; Bert Brys |
| Abstract: | Policymakers cannot directly adjust the tax burden of labour income, but they can reform the statutory elements of the tax system, which ultimately determine average and marginal tax rates. To shed light on the determinants of average and marginal personal tax rates, this paper discusses historical and cross-country trends in statutory personal income tax rates, the income thresholds where personal income tax and employee social security contribution rates apply, and other statutory provisions that shape the tax burden on labour income in OECD countries. Trends in the difference between statutory, average and marginal personal income tax rates are also analysed and graphically illustrated. The impact of employee social security contributions on top marginal personal tax rates is also discussed. The most pronounced trend that emerged from 2000 to 2010 in OECD countries is a reduction in top statutory personal income tax rates. This trend was accompanied by reductions in the threshold where the top rate applies, as well as reductions in the statutory rate applicable at average wage earnings.<P>Évolution des barèmes des impôts sur le revenu des personnes physiques et des cotisations de sécurité sociale<BR>Les responsables politiques ne sont pas en mesure d’ajuster directement la charge fiscale des revenus du travail mais ils ont la possibilité de réformer les aspects du système fiscal qui sont définis par la loi, et qui déterminent en définitive les taux moyens et marginaux d’imposition. Afin de mettre en lumière les déterminants des taux moyens et marginaux d’imposition des revenus des personnes physiques, ce document étudie, dans une optique rétrospective et internationale, l’évolution des taux légaux de l’impôt sur le revenu des personnes physiques, les seuils d’application de l’impôt sur le revenu et des cotisations salariales de sécurité sociale, ainsi que les autres dispositions légales qui influent sur la charge fiscale des revenus du travail dans les pays de l’OCDE. L’évolution de la différence entre les taux légaux, moyens et marginaux de l’impôt sur le revenu des personnes physiques est également analysée et représentée graphiquement. Par ailleurs, ce document examine l’impact des cotisations salariales de sécurité sociale sur les taux marginaux maximums d’imposition des revenus des personnes physiques. La tendance la plus nette qui se dégage dans les pays de l’OCDE entre 2000 et 2010 est la réduction des taux légaux maximums de l’impôt sur le revenu des personnes physiques. Cette évolution s’est accompagnée de réductions du seuil d’application du taux maximum, ainsi que de réductions du taux légal applicable au salaire moyen. |
| Keywords: | personal income tax, social security contributions, tax exemptions, statutory tax rate, surtax, exonération fiscale, cotisations de sécurité sociale, impôt sur le revenu des personnes physiques, taux légal d’imposition, surtaxe |
| JEL: | H24 H55 H71 |
| Date: | 2012–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:12-en&r=pbe |
| By: | De Borger B.; Proost S. |
| Abstract: | In this paper, we provide a selective survey of the recent literature that deals with transport policy competition between governments. The paper shows the potential relevance of strategic behaviour by governments in deciding on prices (taxes, tolls) and investment in infrastructure capacity. The severity and the welfare effects of tax exporting behaviour and of horizontal tax and expenditure competition strongly depend on whether the transport links controlled by the different governments are strategic complements or substitutes. The scarce transport economics literature on vertical competition between hierarchical governments has so far mainly focused on the question which government level should be responsible for providing and financing local infrastructure. The survey identifies a number of gaps in the literature that may be useful avenues for further research. These include more detailed analysis of the implications of vertical tax and expenditure competition between hierarchical government levels, a political economy approach to problems of transport decision-making with multiple government levels and, most importantly, more empirical analysis to document the relevance of the theoretical literature. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2012014&r=pbe |
| By: | Andreas Kuhn (University of Zurich, Department of Economics) |
| Abstract: | This paper describes individuals' inequality perceptions, distributional norms, and redistributive preferences in a panel of OECD countries, primarily focusing on the association between these subjective measures and the effective level of inequality and redistribution. Not surprisingly, the effective level of redistribution (after tax-and-transfer inequality) is positively (negatively) correlated with redistributive preferences. There is also evidence showing that the subjective and objective dimension of inequality and redistribution are, at least partially, linked with individuals' political preferences and their voting behavior. The association between objective and subjective measures of inequality and redistribution vanishes, however, once more fundamental country characteristics are taken into account. This suggests that these characteristics explain both redistributive preferences as well as the effective level of redistribution and after tax-and-transfer inequality. |
| Keywords: | inequality perceptions, distributional norms, redistributive preferences, inequality, redistribution, political preferences |
| JEL: | D31 D63 J31 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:jku:nrnwps:2012_08&r=pbe |
| By: | Richard M. Bird (University of Toronto) |
| Abstract: | Canada is not a country with a reputation for bold experimentation. However, Canadian experience demonstrates conclusively that an invoice-credit, destination-based value-added tax (VAT) is workable at the subnational level, with both federal and provincial governments retaining full control over the rates of their sales taxes as well as retaining a surprising degree of policy freedom with respect to the base of the tax. As this paper shows against the background of a concise history of sales taxation in Canada, it has taken decades of federal-provincial negotiations to produce the present substantially integrated national and provincial sales tax system. Moreover, the process not yet complete and the results are far from perfect. Nonetheless, Canada has shown that not only can VATs be introduced at the subnational level but that they can work surprisingly well – at least in a country with an over-riding national VAT. |
| Keywords: | Canada, VAT, subnational taxes, intergovernmental fiscal relations |
| Date: | 2012–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1221&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); William H. Kaempfer (Department of Economics, University of Colorado at Boulder); Edward Batte Sennoga (Kampala, Uganda) |
| Abstract: | In this paper we examine the impact on the salaries of free agents in Major League Baseball of differences in state and local individual income taxes between major league cities, in an attempt to see if income taxes affect player salaries. Our basic specification suggests that each percentage point of an income tax raises free agent salaries by $21 to $24 thousand; other estimates indicate even larger impacts. Our findings suggest that the existence of this additional salary demand means that low tax cities (e.g., Florida, Texas, and Washington) have a "home field advantage" in the baseball free agent market. |
| Keywords: | Tax incidence, free agents, income tax, luxury tax |
| JEL: | H22 H24 H31 H73 L83 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1209&r=pbe |
| By: | Florian Heider; Alexander Ljungqvist |
| Abstract: | We use a natural experiment in the form of staggered changes in corporate income tax rates across U.S. states and time to show that tax considerations are a first-order determinant of firms’ capital structure choices. Over the period 1990-2011, firms increase leverage by 114 basis points on average (equivalent to $62.1 million in extra debt) when their home state raises tax rates. Contrary to standard trade-off theory, the tax sensitivity of leverage is asymmetric: Firms do not reduce leverage in response to tax cuts. Using treatment reversals, we find this to be true even within-firm: Tax increases that are later reversed nonetheless lead to permanent increases in a firm’s leverage – an unexpected and novel form of hysteresis. Our findings are robust to various confounds due to unobserved variation in local business conditions or investment opportunities, union power, or states’ political leanings. Treatment effects are heterogeneous, with greater tax sensitivity among profitable and investment-grade firms which have a greater marginal tax benefit and lower marginal cost of issuing debt, respectively. |
| JEL: | G0 G32 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18263&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Robert D. Buschman (Fiscal Research Center, Andrew Young School of Policy Studies, Georgia State University); David L. Sjoquist (Economics Department, Georgia State University) |
| Abstract: | Historically, local governments in the United States have relied on the property tax as one of their main sources of own-source revenues. However, the recent collapse of housing prices and the resulting negative impact on local government budgets suggest that it may be opportune to rethink this strategy. In this paper we document the overall decline in property values in the United States in recent years, and we find that the impact is in the aggregate negative but that the impact varies significantly by state and by locality. We also examine the impact on local government revenues, and we again find substantial regional and local variation. Indeed, our data indicate that substantial numbers of local governments seem to have avoided the significant and negative budgetary impacts seen most clearly for state and federal governments, at least to date. We then focus specifically on the State of Georgia, in order to determine the ways in which local governments have responded to the economic recession. Our empirical analyses indicates that there are several factors causing changes in property tax revenues, but the dominant factor is changes in housing prices, with some significant lags. We conclude that local government reliance on the property tax has in fact been an advantage for many local governments in the current economic environment, and that such reliance is likely to continue in at least some form for the immediate future. |
| Keywords: | property tax; state and local finance; tax limitations; assessment; tax base elasticity |
| JEL: | H2 H7 R3 R5 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1215&r=pbe |
| By: | Jiri Jonas |
| Abstract: | The paper discusses the fiscal impact of the Great Recession of 2007-08 on state and local governments in the United States. It documents the sharp decline in tax revenue and discusses how states responded to close the budget gaps in order to obey the balanced budget provisions. It highligts the procyclical nature of this policy response, provides a brief comparison with subnational policy stances in other advanced economies, and discusses some options for making subnational fiscal policy less procyclical within the framework of current rules. |
| Keywords: | Economic recession , Fiscal policy , Government expenditures , Stabilization measures , Tax collection , Tax revenues , United States , |
| Date: | 2012–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/184&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Keith Finlay (Department of Economics, Tulane University) |
| Abstract: | In this paper, we examine the distributional effects of tax evasion, using results from theoretical, experimental, empirical, and especially the general equilibrium literatures on tax evasion. Much, if not all, of this evidence concludes that the main beneficiaries of successful tax evasion are the tax evaders themselves, with distributional effects that largely favor higher income individuals. However, when general equilibrium adjustments in commodity and factor prices are considered, the distributional effects become considerably more complicated. The work on tax compliance is also put in the broader context of the distributional effects of other types of criminal activities, where similar forces seem to be at work. We conclude with some suggestions for future research. |
| Keywords: | tax evasion, general equilibrium |
| JEL: | H26 H22 D03 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1214&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Mikhail I. Melnik (Department of Business Administration, School of Engineering Technology and Management, Southern Polytechnic State University) |
| Abstract: | Online commerce presents consumers with a convenient way of shopping outside of their local jurisdiction, and this online purchase decision is capable of affecting in significant ways the sales and use tax collections of state governments. However, the actual revenue impact has proven difficult to estimate. There is considerable work that examines the revenue impact of seller compliance with sales taxes. However, there is little work on buyer compliance with use taxes. In this paper we investigate the potential impact of cross-border shopping on state use tax liabilities of buyers, using data from the largest online consumer-to-consumer and business-to-consumer marketplace, eBay.com. We collect our own data on actual cross-border shopping transactions from eBay, focusing upon a "representative" commodity classification and a "typical" day; these data consist of nearly twenty-one thousand eBay listings generated by roughly seven thousand individual sellers with over nine thousand buyers. These data allow us to examine the extent of actual, not estimated, cross-border shopping by buyers, and the subsequent potential impact of this cross-border shopping on state use tax liabilities. Our results indicate that cross-border shopping is highly prevalent on eBay, with out-of-state purchases accounting for on average 94 percent of the volume of a state's purchase transactions. Even so, given the limited volume of eBay-based transactions relative to total sales transactions, the likely impact of cross-border transactions on state use tax revenue streams is quite low, at least at present, typically less than one percent of actual state sales tax revenues. |
| Keywords: | online commerce, sales taxes, nexus, tax evasion |
| JEL: | H71 H73 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1205&r=pbe |
| By: | Richard M. Bird (University of Toronto); J. Scott Wilkie (Ernst & Young LLP, Toronto) |
| Abstract: | This paper is a non-technical discussion by an economist and lawyer, each with long international experience in taxation, of the constraints and objectives that in principle and practice shape tax policy design. After discussing the main factors traditionally taken into account by those charged with designing tax policy in any country – such as revenue, the costs of taxation, equity and fairness, administrability, and the effects of taxation on growth and other non-fiscal objectives – several additional important considerations associated with ‘globalization’ are then discussed with special attention to income taxes. The paper concludes with a brief reflection on how the ‘new world tax order’ in which countries must now develop their tax systems may perhaps develop over time. |
| Keywords: | tax policy design; globalization |
| Date: | 2012–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1224&r=pbe |
| By: | Nicoletta Batini; Giovanni Callegari; Giovanni Melina |
| Abstract: | The output effects of 2009 fiscal expansions have been hotly debated. But the discussion of fiscal multipliers is even more relevant now that several European countries have had to quickly retract their stimulus measures in an effort to regain market confidence. Using regime-switching VARs we estimate the impact of fiscal adjustment on the United States, Europe and Japan allowing for fiscal multipliers to vary across recessions and booms. We also estimate ex ante probabilities of recessions derived in association with different-sized and different types of consolidation shocks (expenditure- versus tax-based). We use these estimates to understand how consolidations should be designed to be most effective in terms of permanently and rapidly reducing a country’s debt-to-GDP ratio. The main finding is that smooth and gradual consolidations are to be preferred to frontloaded or aggressive consolidations, especially for economies in recession facing high risk premia on public debt, because sheltering growth is key to the success of fiscal consolidation in these cases. |
| Keywords: | Fiscal consolidation , Fiscal policy , Adjustment process , External shocks , Business cycles , Government expenditures , Public debt , Risk management , |
| Date: | 2012–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/190&r=pbe |
| By: | Ernesto Crivelli; Dora Benedek; Priscilla S. Muthoora; Sanjeev Gupta |
| Abstract: | This paper reexamines the relationship between aid and domestic tax revenues using a more recent and comprehensive dataset covering 118 countries for the period 1980 - 2009. Overall, our results support earlier findings of a negative association between net Official Development Assistance (ODA) and domestic tax revenues, but this relationship appears to have weakened in reflection of greater efforts at mobilizing domestic revenues in many countries. The composition of net ODA matters: ODA grants are associated with lower revenues, while ODA loans are not. The paper further finds that net ODA and grants are negatively associated with VAT, excise and income tax revenues, but have a positive relationship with trade taxes. Aid has a particularly strong negative effect on domestic tax revenues in low-income countries and in countries with relatively weak institutions. |
| Date: | 2012–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/186&r=pbe |
| By: | Richard M. Bird (University of Toronto) |
| Abstract: | The degree of fiscal decentralization in Colombia is impressive. In some respects, however, Colombian decentralization has hardly changed since the process first began over 40 years ago. This review of the experience of the last few decades and the challenges now facing the country shows that there have been some clear successes as a result of decentralization. However, many problems have also arisen as a result of both perverse incentives built into the system and the failure to build up central and especially local capacity to manage a more decentralized system. Unless these critical problems are resolved, fiscal decentralization in Colombia will remain a work in progress with, at best, only partially successful outcomes whether in terms of providing public services to the country’s growing population more effectively, efficiently, and equitably or in terms of improving subnational governance in general. |
| Date: | 2012–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1223&r=pbe |
| By: | Enrico Colombatto (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy) |
| Abstract: | The supply-side literature underscores two main concepts. Taxation usually harms growth and fiscal competition provides effective protection against excessive fiscal pressure. Understandably, governments tend to dislike fiscal competition, and strive to create fiscal cartels justified by the general principle of fiscal harmonization. This paper argues that, from the policymakers’ standpoint, fiscal harmonization is inferior to automatic exchange of information among fiscal authorities and also to schemes of anonymous withholding taxes. By contrast, fiscal harmonization could be a useful instrument that international bureaucrats resort to in order to obtain fiscal centralization. We conclude that their chances to succeed largely depend on the rent-seeking strategies pursued by the national decision-makers and on the perceived legitimacy of the federal authorities. |
| Keywords: | Laffer curve, taxation, fiscal harmonization, legitimacy, consensus, rent-seeking |
| JEL: | H3 H7 H8 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:10&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Chandler McClellan (Department of Economics, Georgia State University) |
| Abstract: | Much recent research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, and a factor that has been suggested as a factor in compliance behavior is "tax morale", or the intrinsic motivation to pay taxes. However, all of this work on tax morale has focused on individuals, not on firms. In this paper, we use information from the Business Environment and Enterprise Performance Survey and also from the World Enterprise Survey for a wide range of countries over several years of data to examine a firm's tax morale and the subsequent impact on firm tax compliance. We use these data first to examine a firm's perception of taxes as an obstacle to doing business. Importantly, once we control for the various factors that affect this perception, what is left is a measure that we believe is a measure of the firm's tax morale, as a driver of the firm's view of the appropriateness of cheating on taxes. With this measure of tax morale, we are then able to examine in a second stage estimation how our estimated firm tax morale affects the compliance decisions of the firm. Ultimately, our results allow us to identify factors that allow the government to improve its efforts to increase firm tax compliance. |
| Keywords: | tax evasion, tax morale, behavioral economics |
| JEL: | H26 H32 H26 H73 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1211&r=pbe |
| By: | Francesco Grigoli |
| Abstract: | Good practice suggests that budget allocations should reflect spending priorities and that spending should provide cost-effective delivery of public goods and services. This paper analyzes the composition of public expenditure in the Slovak Republic. It also assesses the relative efficiency of spending in education and health. The Slovak Republic spends more on social benefits and less on wages compared to the EU and OECD average. While it manages to translate the low expenditures into outcomes in an efficient manner in the education sector, this is not true for health. Moreover, the recent increases in expenditure levels have not improved outcomes, suggesting that significant budgetary savings could be achieved through increases in efficiency. |
| Keywords: | Education , Government expenditures , Health care , Public finance , Resource allocation , |
| Date: | 2012–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/173&r=pbe |
| By: | Andrew Feltenstein (Andrew Young School of Policy Studies, Georgia State University); Musharraf Cyan (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | This study develops a dynamic general equilibrium model, applied to Pakistani data, in which optimizing agents evade taxes by operating in the underground economy. The cost to firms of evading taxes is that they find themselves subject to credit rationing from banks. Our model simulations show that in the absence of budgetary flexibility to adjust expenditures, raising tax rates too high drives firms into the underground economy, thereby reducing the tax base. Aggregate investment in the economy is lowered because of credit rationing. Taxes that are too low eliminate the underground economy, but result in unsustainable budget and trade deficits. Thus, the optimal rate of taxation, from a macroeconomic point of view, may lead to some underground activity. We note, in particular, that incorporating a VAT without any other tax reductions greatly reduces the tax compliance of the service sector. We have applied our model to Pakistan, and have calibrated our model to an 8 year period from 2004-2011. We note that it gives a reasonable approximation of Pakistani macro data. We then use a sectoral breakdown of tax data generated by the model to estimate tax gaps on a sector by sector basis. We note that certain sectors are currently paying taxes below their potential, while others may be above their tax potential. These sectoral gap estimates may be used as indicators of where greater tax enforcement efforts should be directed. |
| Date: | 2012–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1226&r=pbe |
| By: | Erich Kirchler (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Stephan Muehlbacher (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Katharina Gangl (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Eva Hofmann (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Christoph Kogler (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Maria Pollai (Department of Applied Psychology: Work, Education and Economy, University of Vienna); James Alm (Department of Economics, Tulane University) |
| Abstract: | In tax compliance research, there has been a significant shift in research emphasis from the analysis of enforcement to the incorporation of trust-building measures that encourage cooperation. In this paper, we trace this shift. We first describe the four major "actors" in the tax compliance game and their complex interactions: taxpayers, elected government officials, appointed tax authorities (or the tax administration), and tax accountants. Second, we examine various perspectives on what determines the compliance decisions of individuals. We start with "economic" factors that are based on tax compliance as an individual decision under risk (e.g., audits and fines). We then move to factors based more on "psychology", like social norms, fairness, and interactions both between taxpayers and between taxpayers and the government. Indeed, over the past few decades the view of taxpayers has shifted from one in which an authoritarian government and its tax authority force citizens to pay their taxes under the threat of punishment, to a view in which both elected and appointed authorities provide the necessary services to enable compliance, and even more recently to a view of authorities and citizens cooperating with one another. Third, we present the "slippery slope" framework as a way of integrating economic and psychological aspects into a unified framework. We conclude with recommendations based on this framework that can improve compliance. |
| Keywords: | tax evasion, behavioral economics, social norms, "slippery slope" |
| JEL: | H26 D03 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1212&r=pbe |
| By: | Kazuki Hiraga (Faculty of Economics, Keio University) |
| Abstract: | We use structural method, that is, Dynamic Stochastic General Equilibrium (DSGE) model with fiscal stabilization rules, for calculating the tax revenue elasticity rate and estimate more plausible value of it. In the short-run, the tax revenue elasticity to output takes negative value and, in medium-run, it takes quite large positive values (from 2.3 to 4) in both permanent and temporary positive productivity shocks. On the other hand, in the long-run, under permanent positive productivity shock remains nearly the value of the tax revenue elasticity converses to about 2.3. But, under temporary one, it decreases and reverses it. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:kei:dpaper:2012-010&r=pbe |
| By: | Thomas Markussen (Department of Economics); Ernesto Reuben (Columbia University and IZA); Jean-Robert Tyran (University of Vienna, University of Copenhagen, and CEPR) |
| Abstract: | The ability of groups to implement efficiency-enhancing institutions is emerging as a central theme of research in economics. This paper explores voting on a scheme of intergroup competition which facilitates cooperation in a social dilemma situation. Experimental results show that the competitive scheme fosters cooperation. Competition is popular but the electoral outcome depends strongly on specific voting rules of institutional choice. If the majority decides, competition is almost always adopted. If likely losers from competition have veto power, it is often not, and substantial gains in efficiency are foregone. |
| Keywords: | public goods; competition; tournament; cooperation; voting |
| JEL: | D72 J33 H41 |
| Date: | 2012–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1204&r=pbe |
| By: | Mutascu, Mihai |
| Abstract: | The aim of paper is to investigate the impact of major religions of the world on collected tax revenues, using a panel-mode approach, with 123 countries, for the period 1996-2010. The paper extends the literature in the field showing how different types of religion influence the level of tax revenues, under an extended set of economic and socio-political control variables. The main finding reveals that collected tax revenues tend to increase under Protestant and Muslim religions. |
| Keywords: | Tax revenues; religion; connections; panel-model; effects |
| JEL: | Z12 H20 C23 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40337&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Mikhail I. Melnik (Department of Business Administration, School of Engineering Technology and Management, Southern Polytechnic State University) |
| Abstract: | How does online cross-border shopping affect state use tax liabilities? We collect our own data on actual online cross-border shopping transactions from eBay.com, focusing upon a "representative" commodity classification and a "typical" day. These data allow us to examine the extent of actual online cross-border shopping by buyers, and the subsequent potential impact on state use tax liabilities of buyers. Our results indicate that online cross-border shopping is highly prevalent on eBay, with out-of-state purchases accounting for on average 94 percent of the volume of a state's online purchase transactions. Even so, given the limited volume of eBay- based transactions relative to total sales transactions, the likely impact of cross-border transactions on state use tax revenue streams is negligible, even if we assume full buyer compliance with state use taxes. |
| Keywords: | online commerce, sales taxes, nexus, tax evasion |
| JEL: | H71 H73 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1206&r=pbe |
| By: | Rolando Ossowski; Alberto Gonzáles-Castillo |
| Abstract: | This paper examines the impact of the availability of fiscal revenues from nonrenewable resources on other revenues of Latin American and Caribbean resource-exporting countries. It compares the performance of nonresource revenues in these countries to that in other countries in the region. The effect of resource revenue on nonresource revenue is found to be negative and statistically significant, with structural breaks both over time and across countries. Nonresource revenues have risen considerably, but they are still lower on average than in comparator countries, and the wedge between both groups of countries has widened over time. They also tend to be more volatile. The paper also analyzes the composition of nonresource revenues. It finds that the performance of VAT and nonresource income taxes of resource exporters has been similar to that of other countries, but revenues from other taxes (including excises) have been lower. The paper's findings have important policy implications. Especially for resource exporters with fiscal vulnerabilities to shocks and sustainability issues, strengthening nonresource revenues would be important to create adequate fiscal space to meet expenditure needs. Oil exporters should also consider phasing out their costly, inefficient, and poorly targeted petroleum subsidies, with compensating measures to protect vulnerable groups. |
| Keywords: | Economics :: Fiscal Policy, Economics :: Economic Development & Growth, Environment & Natural Resources, Nonrenewable resources, Oil revenues, Mineral revenues, Domestic revenue effort, Nonresource revenues, Value-added tax, Income tax, Petroleum subsidies |
| JEL: | E62 H20 H21 H55 O13 O23 Q30 Q33 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:75558&r=pbe |
| By: | Dirk Heine; John Norregaard; Ian W.H. Parry |
| Abstract: | This paper recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions. Motor fuel taxes should also account for congestion and other externalities associated with vehicle use, at least until mileage-based taxes are widely introduced. An examination of existing energy/environmental tax systems in Germany, Sweden, Turkey, and Vietnam suggests that there is substantial scope for policy reform. This includes harmonizing taxes for pollution content across different fuels and end-users, better aligning tax rates with values for externalities, and scaling back taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes. |
| Keywords: | Cross country analysis , Energy taxes , Environmental protection , Germany , Sweden , Tax reforms , Tax system reviews , Turkey , Vietnam , |
| Date: | 2012–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/180&r=pbe |
| By: | Kiichi Tokuoka |
| Abstract: | In Japan, intergenerational inequality in lifetime resources is substantial, with a heavier fiscal burden on the young than the old. Moreover, given the need for fiscal consolidation, the inequality is even worse than existing policy would suggest. However, this does not mean that fiscal consolidation would make the young worse off. Lack of fiscal consolidation would eventually increase interest rates, which would reduce output and hit young generations harder. Simulations using an overlapping generations model indicate that, from the perspective of intergenerational fairness, it would be desirable to include both social security spending reforms and revenue measures in a fiscal consolidation package. The simulations also show that delaying fiscal consolidation could be costly and worsen intergenerational resource inequality. |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/197&r=pbe |
| By: | Francesco Busato; Bruno Chiarini |
| Abstract: | This paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant of the Laffer curve for a plausible parameterization. In this respect, the paper also identifies the different parameterization of the model formulation with tax evasion under which a Laffer curve exist. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than announcing to punish them if convicted, and that an economy without problems of compliance is much more sensitive to myopic behavior. |
| Keywords: | Two-sector Dynamic General Equilibrium Models, Fiscal Policy, Tax Evasion and Underground Activities |
| JEL: | E32 E13 H20 E26 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:2012-8&r=pbe |
| By: | Mutascu, Mihai |
| Abstract: | The paper investigates the effects of clime conditions on collected tax revenues, based on a panel-model approach. The data-set includes 123 countries and covers the period 1996-2010. The main results show that the assumed function is linear, the clime conditions heaving a significant impact on collected tax revenues. Overall, the collected tax revenues tend to increase under cool, polar or boreal climate. The paper extends the literature in the field by focusing on the clime implications in economy and finds new evidences regarding the determinants of collected tax revenues. |
| Keywords: | Climate conditions; Tax revenues; Panel-model; Effects; Tax policy |
| JEL: | H20 C23 Q54 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40324&r=pbe |
| By: | Kevin Callison; Robert Kaestner |
| Abstract: | There is a general consensus among policymakers that raising tobacco taxes reduces cigarette consumption. However, evidence that tobacco taxes reduce adult smoking is relatively sparse. In this paper, we extend the literature in two ways: using data from the Current Population Survey Tobacco Use Supplements we focus on recent, large tax changes, which provide the best opportunity to empirically observe a response in cigarette consumption, and employ a novel paired difference-in-differences technique to estimate the association between tax increases and cigarette consumption. Estimates indicate that, for adults, the association between cigarette taxes and either smoking participation or smoking intensity is negative, small and not usually statistically significant. Our evidence suggests that increases in cigarette taxes are associated with small decreases in cigarette consumption and that it will take sizable tax increases, on the order of 100%, to decrease adult smoking by as much as 5%. |
| JEL: | I12 I18 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18326&r=pbe |
| By: | Michael Smart (University of Toronto) |
| Abstract: | Business property taxes in Ontario have fallen dramatically in the past decade, due to a series of reforms mandated by the provincial government. In this paper, I discuss the likely impacts of the reforms on business location, wages, and land values, and the economic welfare of provincial residents. I use the reforms to estimate the responsiveness of business location and employment to local tax differentials. The reforms have caused a large shift in legal tax burdens from businesses to residents, particularly in Toronto and a few other cities. Based on my analysis, I conclude that the tax reform has had a small positive impact on employment in cities and on business productivity in Ontario. |
| Keywords: | business taxes, business location, intermunicipal competition |
| JEL: | H25 R33 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:mfg:wpaper:10&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Asmaa El-Ganainy (Fiscal Affiars Department, International Monetary Fund (IMF)) |
| Abstract: | One of the main rationales for taxing consumption rather than income is that it is believed that consumption taxes discourage consumption, encourage savings, and thus generate higher economic growth. However, empirical evidence on the actual effectiveness of consumption taxes in stimulating savings is very limited. In this paper, we estimate the impact of a broad-based consumption tax, the value-added tax (VAT), on the aggregate consumption of fifteen European Union countries over the period 1961-2005. Our empirical results indicate, across a variety of estimation methods and specifications, that a one percentage point increase in the VAT rate leads to roughly a one percent reduction in the level of aggregate consumption in the short run and to a somewhat larger reduction in the long run. |
| Keywords: | value-added taxation, consumption taxation, savings, economic growth, generalized methods of moments estimation |
| JEL: | H20 H25 H31 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1203&r=pbe |
| By: | Philippe K. Widmer; George Elias; Peter Zweifel |
| Abstract: | The purpose of this paper is to analyze the optimal scale of local jurisdictions (cantons) in Switzerland applying Data Envelopment Analysis (DEA) to the years 2000 to 2004. Aggregate output performance indicators for four local government activities (administration, education, health, and transportation) are used to measure technical and scale efficiency and to derive DEA scores. Results show that these public services fail to exhibit economies of scale, undermining quests for centralization of public good provision while suggesting the possibility of Tiebout competition. |
| Keywords: | DEA, efficiency measurement, economies of scale, public good provision, Switzerland |
| JEL: | C14 C67 H11 H72 H83 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:085&r=pbe |
| By: | Alastair Thomas; Fidel Picos-Sánchez |
| Abstract: | This paper investigates the merits of increasing work incentives for low-income workers by shifting part of the tax burden from social security contributions (SSC) to consumption taxes (specifically VAT) in 13 European OECD countries. Simulation results based on household budget survey microdata show that such reforms will increase work incentives for low-income workers at both participation and hours-worked margins. However, these increases will generally be small as part of the VAT increase will still be borne by low-income workers. This, combined with difficulty targeting the reforms and potential equity concerns regarding increasing the tax burden on non-workers, suggests that alternate funding sources to a VAT increase should also be considered to fund SSC reductions.<P>Le remplacement des cotisations de sécurité sociale par des impôts sur la consommation : incidence sur l'incitation des salariés titulaires de faibles revenus à travailler<BR>Ce document étudie le bien-fondé des mesures prises dans 13 pays européens de l?OCDE pour renforcer l?incitation au travail des salariés à faibles revenus par un transfert partiel de la charge fiscale des cotisations de sécurité sociale (CSS) vers les impôts sur la consommation (plus précisément la TVA). Les résultats de simulations fondées sur des données microéconomiques obtenues à la suite d?enquêtes sur les budgets des ménages montrent que ces réformes renforcent l?incitation des titulaires de faibles revenus à travailler, aussi bien pour ce qui est du choix d?accepter un emploi que du nombre d?heures ouvrées. Cependant, ce renforcement sera généralement faible, dans la mesure où une partie de l?augmentation de la TVA restera à la charge des salariés à faibles revenus. Ce fait, combiné à la difficulté de cibler les réformes et aux problèmes d?équité que risque de poser l?augmentation de la charge fiscale pesant sur des non-salariés, montre qu?il serait préférable de rechercher d?autres sources que la TVA pour financer des réductions des CSS. |
| Keywords: | work incentives, VAT, consumption tax, social security contributions, TVA, cotisations de sécurité sociale, impôts sur la consommation, incitation à travailler |
| JEL: | H21 H23 H24 H55 |
| Date: | 2012–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:11-en&r=pbe |
| By: | Ianchovichina, Elena; Estache, Antonio; Foucart, Renaud; Garsous, Gregoire; Yepes, Tito |
| Abstract: | In the next 10 years or so, the infrastructure sector has the potential to generate significant employment. This paper estimates annual job creation of about 2.0 million in direct jobs and 2.5 million in direct, indirect and induced infrastructure-related jobs just by meeting the infrastructure investment needs of about 6.9 percent of gross domestic product (about US$106 billion) for the Middle East and North Africa region on average. The breakdown in expected needs is 11 percent in developing oil exporters, 6 percent in oil importing countries, and 5 percent in the Gulf Cooperation Council oil exporters. Needs are particularly high in electricity and roads. While important, infrastructure job creation will not resolve the region's unemployment problem alone and its job creation potential varies greatly across countries. Moreover, the current ability to finance and hence meet the infrastructure needs varies significantly across countries. Oil importers are likely to fall short under business as usual scenarios. In a region in which the public sector is the main source of infrastructure financing, fiscal choices will thus matter to job creation through infrastructure. But there are more challenges, including the governance of job creation, and the proper targeting and costing of subsidies for job creation and the (re)training programs needed. Managing expectations will also matter, as infrastructure jobs will help but will not solve the region's unemployment and underemployment problems. |
| Keywords: | Transport Economics Policy&Planning,Labor Markets,Banks&Banking Reform,Public Sector Economics,Labor Policies |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6164&r=pbe |
| By: | James Alm (Department of Economics, Tulane University); Erich Kirchler (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Stephan Muehlbacher (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Katharina Gangl (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Eva Hofmann (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Christoph Kogler (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Maria Pollai (Department of Applied Psychology: Work, Education and Economy, University of Vienna) |
| Abstract: | In this paper we give our perspective on the different paradigms that have shaped – and seem likely to shape in the future – research in the field of tax compliance behavior. These research paradigms include viewing tax evasion as a decision under risk made by a single taxpayer, as a social dilemma in which there is a tension between individual interests (e.g., cheating on one's taxes) and collective goals (e.g., providing public goods), as a series of decisions made by many different types of taxpayers, and as a psychological contract between tax authorities and taxpayers. We argue that these different paradigms require that particular attention be paid to the main "actors in the field", which involves going beyond a focus on a single taxpayer to consider other taxpayers, tax accountants, the tax authorities, and the government. The ways in which these actors interact in different climates, especially the dynamics of power and trust between the actors, must also be considered. We conclude with a discussion of a framework – the "slippery slope framework" – that attempts to synthesize these different research paradigms. Throughout, we illustrate our arguments by reference to research that focuses especially on the European experience. |
| Keywords: | tax evasion, behavioral economics, social norms, "slippery slope" |
| JEL: | H26 D03 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1210&r=pbe |
| By: | Giancarlo Corsetti; André Meier; Gernot Müller |
| Abstract: | This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis. |
| Keywords: | Budget deficits , Cross country analysis , Currency pegs , Exchange rate regimes , Financial crisis , Fiscal policy , Government expenditures , Public debt , |
| Date: | 2012–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/150&r=pbe |
| By: | Jeffrey A. Frankel; Jesse Schreger |
| Abstract: | Why do countries find it so hard to get their budget deficits under control? Systematic patterns in the errors that official budget agencies make in their forecasts may play an important role. Although many observers have suggested that fiscal discipline can be restored via fiscal rules such as a legal cap on the budget deficit, forecasting bias can defeat such rules. The members of the eurozone are supposedly constrained by the fiscal caps of the Stability and Growth Pact. Yet ever since the birth of the euro in 1999, members have postponed painful adjustment by making overly optimistic forecasts of future growth and budget positions and arguing that the deficits will fall below the cap within a year or two. The new fiscal compact among the euro countries is supposed to make budget rules more binding by putting them into laws and constitutions at the national level. But what is the record with such national rules? Our econometric findings are summarized as follows: • Governments’ budget forecasts are biased in the optimistic direction, especially among the Eurozone countries, especially when they have large contemporaneous budget deficits, and especially during booms. • Governments’ real GDP forecasts are similarly over-optimistic during booms. • Despite the well-known tendency of eurozone members to exceed the 3% cap on budget deficits, often in consecutive years, they almost never forecast that they will violate the cap in the coming years. This is the source of the extra bias among eurozone forecasts. If euro area governments are not in violation of the 3% cap at the time forecasts are made, forecasts are no more biased than other countries. • Although euro members without national budget balance rules have a larger over-optimism bias than non-member countries, national fiscal rules help counteract the wishful thinking that seems to come with euro membership. The reason is that when governments are in violation of the 3% cap the national rules apparently constrain them from making such unrealistic forecasts. • Similarly, the existence of an independent fiscal institution producing budget forecasts at the national level reduces the over-optimism bias of forecasts made when the countries are in violation of the 3% cap. |
| JEL: | F3 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18283&r=pbe |
| By: | Alexander Gelber (Wharton School, University of Pennsylvania); Matthew Weinzierl (Harvard Business School, Business, Government and the International Economy Unit) |
| Abstract: | Empirical research suggests that parents' economic resources affect their children's future earnings abilities. Optimal tax policy therefore will treat future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate optimal policy numerically. Optimal policy is more redistributive toward low-income parents than existing U.S. tax policy. The optimal policy increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of 1.28% of consumption in our baseline case. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:13-014&r=pbe |
| By: | Rosenthal, Dale W.R.; Thomas, Nordia Diana Marie |
| Abstract: | We develop a price maker/taker model to study how a financial transaction tax affects markets. We find taxes widen quoted and effective spreads by more than twice the tax. Taxes increase volatility slightly (without intermediation) to significantly (with intermediation). High taxes may halve volumes and gains from trade while doubling search costs. Measures of market quality are more affected by taxes in markets with intermediaries. Investors and intermediaries competing for liquidity can triple search costs and increase quoted spreads while decreasing effective spreads. We also find revenue-optimal rates of 60-75 bp. Our results are particularly relevant to markets with high-frequency trading or thin depth. |
| Keywords: | transaction tax, Tobin tax, market microstructure, limit order model, high-frequency trading, search costs |
| JEL: | D44 G18 C72 |
| Date: | 2012–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40556&r=pbe |