nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒11‒16
24 papers chosen by
Keunjae Lee
Pusan National University

  1. Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report By European Commission
  2. Who participates in tax avoidance? By Alstadsæter, Annette; Jacob, Martin
  3. Homeowners, Renters and the Political Economy of Property Taxation By Eric J. Brunner; Stephen L. Ross; Rebecca K. Simonsen
  4. The effect of awareness and incentives on tax evasion By Alstadsæter, Annette; Jacob, Martin
  5. Firm valuation and the uncertainty of future tax avoidance By Jacob, Martin; Schütt, Harm
  6. Taxation of Dividend, Interest, and Capital Gain Income By Michelle Harding
  7. Dynamic Optimal Taxation in Open Economies By Till Gross
  8. Capital Tax Competition and Dynamic Optimal Taxation By Till Gross
  9. Does Fiscal Decentralization Increase the Investment Rate? Evidence from Chinese Dynamic Panel Data By Qichun He; Meng Sun; Heng-fu Zou
  10. Tax Reform and Environmental Policy: Options for Recycling Revenue from a Tax on Carbon Dioxide By Goulder, Lawrence H.; Hafstead, Marc A.C.
  11. Capital Taxation, Intermediate Goods, and Production Efficiency By Till Gross
  12. Essays on tax policy, institutions, and output. By Ji, K.
  13. Corporate Taxation and Productivity Catch-Up: Evidence from European Firms By Norman Gemmel; Richard Kneller; Danny McGowan; Ismael Sanz
  14. The Impact of Headquarter and Subsidiary Locations on Multinationals’ Effective Tax Rates By Kevin S. Markle; Douglas A. Shackelford
  15. Public Education Spending, Sectoral Taxation and Growth By Marion Davin
  16. Public infrastructure and economic growth in Pakistan: a dynamic CGE-microsimulation analysis By Vaqar Ahmed; Ahsan Abbas; Saira Ahmed
  17. Enhancing the credibility of fiscal forecasts in South Africa: Is a fiscal council the only way? By Estian Calitz; Krige Siebrits; Ian Stuart
  18. Pareto-improving tariff-tax reforms under imperfect competition By Kenji Fujiwara
  19. Fiscal policy and external imbalances in a debt crisis: the Spanish case By Pablo Hernández de Cos; Juan F. Jimeno
  20. Inequality Dynamics and the Politics of Redistribution By Tetsuo Ono
  21. Using the Tax System To Address Competition Issues with a Carbon Tax By Metcalf, Gilbert E.
  22. A Theory of Top Income Taxation and Social Insurance By Francisco M. Gonzalez; Jean-Francois Wen
  23. Exchange of Information and Validity of Global Standards in Tax Law: Abstractionism and Expressionism or Where the Truth Lies By Ana Paula Dourado
  24. What Drives Fiscal Multipliers? The Role of Private Wealth and Debt By Sebastian Gechert; Rafael Mentges

  1. By: European Commission (European Commission)
    Abstract: The 2013 edition of the report ‘Tax reforms in EU Member States’ contributes to the tax policy debate in the EU. Compared to previous editions, the report has been streamlined with a stronger focus on the Member State level. The report consists of two parts: (i) an extensive overview of recent tax reforms, and (ii) a discussion of selected tax policy challenges relevant for improving Member States’ tax systems in two analytical chapters. The chapter on recent tax reforms identifies common trends across countries and offers a typology of reforms consistent with the main messages of the European Semester. The first analytical chapter focuses on two wide ranging challenges that EU Member States are facing in the area of tax policy in times of slow growth and high fiscal consolidation needs: the potential contribution of taxation to consolidate public finances – in addition to expenditure control – and the growth-friendliness of the tax structure. Beside updating and refining last year's horizontal screening, various checks have been carried out to see how robust the results are. The second analytical chapter deals with economic challenges that EU Member States are facing with respect to the design of individual taxes and tax compliance. It deepens the analysis of tax expenditure with particular insights on personal income taxation and examines the debt bias in corporate taxation, notably its effects on banks’ capital structures. Applying an indicator-based approach, the report then provides an update of the analysis carried out in previous years on broadening the VAT base, on housing taxation, on environmental taxation and on improving tax governance. Finally, the chapter analyses the influence of taxation on income inequality.
    Keywords: European Union, Taxation, European Semester, VAT, Coporpotate income tax, tax administration, tax reform
    JEL: H21 H22 H23 H25 H27 H62
    Date: 2013–10
  2. By: Alstadsæter, Annette; Jacob, Martin
    Abstract: This paper analyzes the sources of heterogeneity in legal tax avoidance strategies across individuals. Three conditions are required for a taxpayer to participate in tax avoidance: incentive, access, and awareness. Using rich Swedish administrative panel data with a unique link between corporate and individual tax returns, we analyze individual participation in legal tax planning around the 2006 Swedish tax reform. Our results suggest that closely held corporations are utilized to facilitate income shifting across tax bases to reduce the individual's overall tax burden. We find that both tax incentives and awareness of tax incentives impact the decision to access income-shifting opportunities. Our results show that factors explaining participation in legal tax avoidance substantially differ from those explaining participation in illegal tax evasion. --
    Keywords: Tax avoidance,Income shifting,Income taxation,Dividend taxation
    Date: 2013
  3. By: Eric J. Brunner (University of Connecticut); Stephen L. Ross (University of Connecticut); Rebecca K. Simonsen (Columbia University)
    Abstract: Many economists have cited fiscal illusion as an argument against specific types of taxes arguing that less visible taxes may cause voters to systematically underestimate the true burden of taxation. The higher willingness of renters to support an increase in the property tax, often referred to as renter illusion, is often used as one of the classic examples of fiscal illusion. In this paper we use detailed micro-level survey data of registered voters in California to provide new evidence on the renter illusion hypothesis. The survey data contains voter responses to two key questions: 1) their willingness to pay higher property taxes to expand funding for public services and 2) their willingness to pay higher sales taxes to fund those services. Using a difference-in-differences estimation strategy to control for individual specific preferences for public service spending, we find first that renters are approximately 10 to 15 percentage points more likely than homeowners to favor a property tax increase over a sales tax increase to fund public services. However, further analysis indicates that our results are not driven by the voting behavior of renters. Results based solely on the sample of renters indicate that renters are indifferent between a property tax increase and a sales tax increase. In contrast, homeowners strongly oppose a property tax increase relative to a sales tax increase. These results cast doubt on the strong version of the renter illusion hypothesis that suggests renters believe they do not pay the property tax. Further analysis reveals that the strong opposition among homeowners to the property tax is not associated with the relative tax burden faced by homeowners. Examining the variation in tax burden created by Proposition 13 in California, we find that homeowner aversion to the property tax does not increase with the homeowner’s relative tax burden. These findings of homeowner aversion to property taxes are consistent with recent work suggesting that salience matters when voters evaluate taxes, but also suggest that increased salience does not necessarily lead to more careful consideration of individual tax burdens.
    Keywords: fiscal illusion, renter effect, tax salience, tax burden, property tax
    JEL: H2 H7 R5
    Date: 2013–10
  4. By: Alstadsæter, Annette; Jacob, Martin
    Abstract: We observe a specific type of tax evasion among business owners in Swedish administrative panel data, after the tax authority has approved all tax returns. For the period 2006-2009, approximately 5% of tax returns overstate a claimed dividend allowance. Tax awareness decreases and complexity increases the likelihood of misreporting. Some observed misreporting could be accidental, while some misreporting is deliberate tax evasion. We identify a positive and significant effect of tax rates on tax evasion, by exploiting a large kink in the tax schedule. The majority of misreporting cases remains undetected. Self-correction is the dominant type of detection. --
    Keywords: tax evasion,tax compliance,tax enforcement,tax awareness,detection
    JEL: H26 H24 D14
    Date: 2013
  5. By: Jacob, Martin; Schütt, Harm
    Abstract: The paper studies the effect of uncertainty in tax avoidance on firm value. We first show in a clean surplus valuation model that expected tax rates interact with expectations about future profitability. This paper builds and tests a valuation framework that incorporates two outcome dimensions of corporate tax avoidance strategies: the stability and the level of expected tax rates. We develop a tax planning score that captures these two dimensions. The measure improves the prediction of future tax avoidance. We finally show that the tax planning score strengthens the effect of pre-tax earnings on firm value. Firms with effective and persistent tax planning have a stronger effect of pre-tax earnings on firm value while firms with poor tax planning or volatile effective tax rates receive a discount on their earnings. --
    Keywords: firm valuation,tax avoidance,tax uncertainty
    JEL: M41 G12 H25
    Date: 2013
  6. By: Michelle Harding
    Abstract: This paper provides an overview of the differing ways in which capital income is taxed across the OECD. It provides an analytical framework which summarises the statutory tax treatment of dividend income, interest income and capital gains on shares and real property across the OECD, considering where appropriate the interaction of corporate and personal tax systems. It describes the different approaches to the tax treatment of these income types at progressive stages of taxation and concludes the discussion of each income type by summarising the different systems in diagrammatic form. For each income type, the paper presents worked calculations of the maximum combined statutory tax rates in each OECD country, under the tax treatment and rates applying as at 1 July 2012. These treatments and rates may have changed since this date and the paper should not be interpreted as reflecting the current taxation of capital income in OECD countries. Ce document donne un aperçu des diverses formes d’imposition des revenus du capital dans les pays de l’OCDE. Il offre un cadre d’analyse qui résume le traitement fiscal légal des dividendes, des intérêts perçus et des plus-values réalisées sur les actions et sur les biens immobiliers dans les pays de l’OCDE, en tenant compte le cas échéant de l’interaction entre le régime de l’impôt sur les sociétés et celui de l’impôt sur le revenu des personnes physiques. Il décrit les différentes approches du traitement fiscal de ces types de revenu à différents niveaux du barème progressif et conclut l’analyse de chaque type de revenu par des diagrammes qui résument les différents systèmes existants. Pour chaque type de revenu, ce document présente des calculs élaborés des taux maximums d’imposition combinés en vigueur dans chaque pays de l’OCDE, en fonction du régime fiscal et des taux applicables au 1er juillet 2012. Ces régimes et taux ont peut-être été modifiés depuis cette date, de sorte que ce document ne reflète pas nécessairement la situation actuelle de la fiscalité des revenus du capital dans les pays de l’OCDE.
    Date: 2013–11–07
  7. By: Till Gross (Department of Economics, Carleton University)
    Abstract: This paper analyzes optimal capital taxation in open economies with strategic interaction in a neo-classical growth model. With a territorial or source-based tax system, I show that optimal capital taxes in steady state are zero for a large open economy, thereby generalizing the result previously established only for the special cases of a closed and a small open economy. If the steady-state assumption is relaxed, optimal capital taxes are still zero when marginal utilities of private and public consumption are bounded, or when the utility function is quasi- linear in consumption. Moreover, in the latter case the solution is also time-consistent. For the residential or world-wide tax principle, however, countries are not able to tax all factors of production, so capital income taxes are generally non-zero except in the limiting cases of a closed or small open economy. Allowing for both residential and territorial taxes restores zero capital taxes.
    Keywords: Dynamic Optimal Taxation, Open Economy, Ramsey Taxation, Capital Taxes
    JEL: H21 E62
    Date: 2013–08–06
  8. By: Till Gross (Department of Economics, Carleton University)
    Abstract: I analyze international tax competition in a framework of dynamic optimal taxation for strategically competing governments. The global capital stock is determined endogenously as in a neo-classical growth model. With perfect commitment and a complete tax system (where all factors of production can be taxed), governments set their capital taxes so that the net return is equal to the social marginal product of capital. Capital accumulation thus follows the modified golden rule. This is independent of relative country size, capital taxes in other countries, and the degree of capital mobility. In contrast, with an exogenous capital stock returns on capital are pure rents and a government's ability to capture them is limited through capital fight, triggering a race to the bottom. With an endogenous capital stock, capital is an intermediate good and taxes on it are not used to raise revenues, but to implement the optimal capital stock. Even in a non-cooperative game it is thus not individually rational for governments to engage in tax competition. I provide a general proof that if the modified golden rule holds in a closed economy, then it also does in an open economy.
    Keywords: Tax Competition, Open Economy, Capital Taxes, Capital Mobility, Ramsey Taxation, Optimal Dynamic Taxation
    JEL: F42 H21 H87 E6
    Date: 2013–10–21
  9. By: Qichun He (Central University of Finance and Economics); Meng Sun (Beijing Normal University); Heng-fu Zou (Development Research Group, World Bank)
    Abstract: In 1994, the Chinese government introduced a new fiscal system -- the tax assignment system -- to replace the old discretion-based system of revenue-sharing. Using this natural experiment and the dynamic provincial panel data during the following period 1995-2002, we find fiscal decentralization has a significant positive effect on the physical capital investment rate in both LSDV (Least squares dummy variables) regression and system GMM (Generalized method of moments) estimation that overcomes the endogeneity of fiscal decentralization. The results are robust to controlling for other variables, and province and time effects. The independence of the local governments is no free lunch. The local officials are not elected by the local constituents. Instead, the central government solely determines their appointment and thereby disciplines them by linking their promotion with the performance of the local economy. Therefore, it is rational for local officials to raise investment rate and thereby growth to maximize their chance of promotion, explaining our findings.
    Keywords: Fiscal decentralization, Investment rate, Dynamic Panel data
    JEL: O11 O33 F43 C23
    Date: 2013–09
  10. By: Goulder, Lawrence H.; Hafstead, Marc A.C. (Resources for the Future)
    Abstract: Carbon taxes are a potential revenue source that could play a key role in major tax reform. This paper employs a numerical general equilibrium model of the United States to evaluate alternative tax reductions that could be financed by the revenues from a carbon tax. We consider a carbon tax that begins at $10 per ton in 2013 and increases at 5 percent per year to the year 2040. The net revenue from the tax is substantial, and the GDP and welfare impacts of the tax depend significantly on how this revenue is recycled to the private sector. Under our central case simulations (which do not account for beneficial environmental impacts) over the period 2013–2040, the tax reduces GDP by .56 percent when revenues are returned through lump-sum rebates to households, as compared with .33 and .24 percent when the revenues are recycled through reductions in personal and corporate tax rates, respectively. Introducing tradable exemptions to the carbon tax reduces or eliminates the negative impacts on the profits of the most vulnerable carbon-supplying or carbon-using industries. The GDP and welfare impacts are somewhat larger when such exemptions are introduced.
    Keywords: carbon tax, tax reform, climate
    JEL: Q50 Q58 H23
    Date: 2013–10–08
  11. By: Till Gross (Department of Economics, Carleton University)
    Abstract: An important controversy in public finance is whether long-run capital taxes are optimally zero or not, with a broad variety of models supporting each case. This paper examines the question whether capital is special and if so, what the underlying principle could be that explains both types of results. I find that capital is provided without distortions in a wide class of models, i.e. that its marginal product is the same in first and second best. The conditions for this to hold are that the government is able to tax all of capital's co-factors of production separately and that capital does not enter the utility function. When individually rational behavior leads to sub-optimal capital accumulation, then capital taxes are used to implement the optimal allocation. The intuition is that capital is an intermediate good; optimal taxation seeks to tax endowments and intermediate goods do not have any endowment component.
    Date: 2013–10–23
  12. By: Ji, K. (Tilburg University)
    Abstract: Abstract: This thesis first examines the interplay among natural resources, the institutions and economic growth, and then deals with the effects of tax policies, with a special focus on the effects of flat income taxes and legislated tax changes. Chapter 2 focuses on the interplay among resource abundance, institutional quality, and economic growth in China, using two different measures of resource abundance, and employs various econometric approaches including a panel-data time-varying coefficient model. Chapter 3 studies which factors have determined the adoption of fl at income taxes and whether these taxes have been effective in raising revenue. On the basis of a panel dataset, an adoption equation and a revenue equation is estimated separately. Chapter 4 empirically investigates the behavior of the credit spread over the business cycle, and studies the relationship between the fiscal stimulus and the credit spread. This chapter first uses a structural vector autoregressive (SVAR) model. To avoid omitted variable bias and limited information in SVAR model, we also use a factor augmented vector autoregressive (FAVAR) model, effectively combining the narrative and recursive approaches for identification of exogenous tax changes. To see if the U.S. experience applies in other countries, we make a comparison between the U.S. and U.K.
    Date: 2013
  13. By: Norman Gemmel (Victoria University of Wellington, New Zealand); Richard Kneller (University of Nottingham, UK); Danny McGowan (Bangor University, UK); Ismael Sanz (Universidad Rey Juan Carlos, Spain)
    Abstract: Firms that lay far behind the technological frontier have the most to gain from imitating the technology or management practices of others. That some firms converge relatively slowly to the productivity frontier suggests the existence of factors that cause them to under-invest in their productivity. In this paper we explore whether higher rates of corporate taxation affect firm productivity convergence because they reduce the after tax returns to productivity enhancing investments for small firms. Using data for 11 European countries we find evidence for such an effect; productivity growth in small firms is slower the higher are high corporate tax rates. Our results are robust to the use of instrumental variable and panel data techniques with quantitatively similar effects found from a natural experiment following the German tax reforms in 2001.
    Keywords: Productivity, taxation, convergence
    JEL: D24 H25 L11 O31
    Date: 2013–03
  14. By: Kevin S. Markle; Douglas A. Shackelford
    Abstract: We examine effective tax rates (ETRs) for 9,022 multinationals from 87 countries from 2006 to 2011. We find that, despite extensive investments in international tax avoidance, multinationals headquartered in Japan, the U.S., and some high-tax European countries continue to face substantially higher worldwide taxes than their counterparts in havens and other less heavily taxed locations. Other findings include: (a) Effective tax rates remained steady over the investigation period; (b) Entering a tax haven country for the first time results in a slight reduction in the firm’s ETR; (c) ETR changes vary depending on whether the subsidiary is a financial conduit or an operating subsidiary. These results should aid ongoing international tax policy debates and expand scholars’ understanding about the taxation of multinationals.
    JEL: F23 H25 H26
    Date: 2013–11
  15. By: Marion Davin (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: This paper examines the interplay between public education expenditure and economic growth in a two-sector model. We reveal that agents’ preferences for services, education and savings play a major role in the relationship between growth and public education expenditures, as long as production is taxed at a different rate in each sector.
    Keywords: Public education, Two-sector model, Sectoral taxes, Endogenous growth.
    JEL: E62 I25 O41
    Date: 2013–10
  16. By: Vaqar Ahmed; Ahsan Abbas; Saira Ahmed
    Abstract: The role of infrastructure in economic growth and welfare has been studied extensively across the literature over the past three decades. We use a dynamic CGE model linked to a microsimulation model to estimate the macro-micro impact of public infrastructure investment. Two approaches to public investment are considered in our simulations. In the first, production taxes finance the additional public infrastructure investment and in the second, foreign borrowing provides resources. Our results reveal that public infrastructure investments have the same direction of impact whether funded by taxation or international borrowing, particularly when looking at macroeconomic gains and poverty reduction in the long run. However, in the very short run, tax financing puts a strain on output in the industrial sector and thus reduces economic growth in the short run. The financing from international borrowing has a Dutch disease-like impact in the short run, as indicated by a decline in exports.
    Keywords: Infrastructure, Economic Growth, Poverty, Pakistan, Computable General Equilibrium
    JEL: C68 E22 H54 I38
    Date: 2013
  17. By: Estian Calitz (Department of Economics, University of Stellenbosch); Krige Siebrits (Department of Economics, University of Stellenbosch); Ian Stuart (Treasury, Government of South Africa)
    Abstract: The paper investigates whether fiscal credibility in South Africa (SA) would be enhanced by following the international trend of establishing a fiscal council. Given that fiscal councils and numerical fiscal rules are increasingly seen as complementary aspects of fiscal policymaking frameworks, we survey evidence on fiscal councils, with reference to empirical studies and country experience – Chile in particular. Whilst earlier studies generated inconclusive results of earlier attempts about the link between fiscal councils and good fiscal performance, more recent studies found that the involvement of fiscal councils has contributed to more accurate macroeconomic and budgetary forecasts. In the light of this evidence – in particular, the increasingly recognised need for flexibility in fiscal rules, respect for the country’s political environment in considering the appropriateness of fiscal councils and the importance of transparency in any fiscal regime – we discuss lessons for SA, and the mechanics of our proposal. SA’s fiscal performance and regime are assessed, with reference to the literature’s finding of historical fiscal sustainability and macro fiscal forecasting accuracy and various measures characterising the current transparency-enhancing regime of fiscal discretion. It is recognised that SA does not have numerical fiscal rules and that the National Treasury has not been outperformed by nongovernment economists in forecasting key variables used in drafting the annual budget. Projections nevertheless become increasingly inaccurate over three-year periods. On average, budget deficit forecasting errors have during the previous decade been lower than in European Union countries. The case for a fiscal council on the basis of better short-term forecasting accuracy alone is not strong. Instead of a fiscal council, an institutional innovation is proposed, namely structured bi-annual discussions of government’s macroeconomic budget forecasts in public parliamentary hearings, integrated into the budget process. This avoids drainage of scarce resources from Treasury and political pitfalls encountered elsewhere and might strengthen credibility of medium-term projections.
    Keywords: fiscal rules, fiscal policy, fiscal council, fiscal transparency, fiscal forecasts
    JEL: H61 H68
    Date: 2013
  18. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: Constructing a duopoly model with non-constant marginal costs and a strict Pareto criterion, this paper examines welfare effects of world-price-fixing tariff reductions accompanied by adjustments of a domestic tax. If a destination-based consumption tax is used, this reform achieves a strict Pareto improvement under sufficiently decreasing marginal costs. If, in contrast, an origin-based production tax is employed, a strict Pareto improvement holds whether marginal cost is decreasing or not. Thus, we can conclude that tariff-tax reforms that improve the world welfare and are irrelevant of tax bases are possible if the targeted industry exhibits sufficiently decreasing marginal costs.
    Keywords: tariff-tax reform, destination principle, origin principle, strict Pareto improvement/deterioration, duopoly
    JEL: F12 F13 H2
    Date: 2013–10
  19. By: Pablo Hernández de Cos (Banco de España); Juan F. Jimeno (Banco de España)
    Abstract: In this paper we reflect on the role that fiscal policy could play in the resolution of the crisis in Eurozone countries crippled by both public and private debt, and beset by growth and competitiveness problems. As an illustration, we revisit the Spanish case, a paradigmatic example of the economic difficulties created by high debt and internal and external imbalances. After describing the build-up of fiscal and macroeconomic imbalances in Spain during the period 1995-2007, we first discuss how the correction of macroeconomic imbalances conditions progress on the fiscal consolidation front and, secondly, how fiscal consolidation affects the correction of imbalances. We conclude that the role that national fiscal policies can play in these countries to expand demand and reduce the costs of solving external and internal imbalances seems limited. Also, overall, the best contribution that fiscal policy can achieve under these constraints is through a better targeting of government expenditures and tax reforms, aimed at introducing permanent measures to stabilise debt ratios. These could then be combined with productivity-enhancing structural reforms and with improvements in product market regulation to increase competition, so that the short-term costs of the internal devaluation required are reduced
    Keywords: macro imbalances, fiscal policy, euro crisis
    JEL: E62 H30 J11
    Date: 2013–11
  20. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This paper analyzes the political economy of public education and lump-sum transfer in an overlapping-generation model of a two-class society in which the dy- namics of inequality is driven by the accumulation of human capital. The two redistributive policies are determined by voting, while private education which sup- plements public education is purchased individually. The model, which includes two-dimensional voting, demonstrates the following two types of stable steady-state equilibria which are in line with the evidence: a high-inequality equilibrium with government spending in favor of public education, and a low-inequality equilibrium with government spending in favor of lump-sum transfer.
    Keywords: Public education, political economy, inequality
    JEL: D72 D91 I24
    Date: 2013–10
  21. By: Metcalf, Gilbert E.
    Abstract: This paper considers how tax reductions financed by a carbon tax could be designed to mitigate the need for specific relief for firms in select energy-intensive, trade-exposed (EITE) sectors. In particular, I consider impacts on manufacturing sectors at the six-digit North American Industry Classification System level, with a special focus on firms that would be presumptively eligible for competitiveness relief using the criteria in the Waxman–Markey bill (H.R. 2454). The paper has a number of findings. First, determination of eligibility for relief analogous to the free allowance allocation in H.R. 2454 is sensitive to energy intensity. Second, providing compensation to EITE sectors through the corporate income tax—analogous to the output-based allowance allocation in Waxman–Markey—is certainly feasible, but tax appetite within the EITE sectors is insufficient to fully use any credits that attempted to offset more than about one-quarter of their carbon tax liability. Third, certain reforms do better than others at providing disproportionate relief to EITE sectors. Finally, economic theory predicts a substantial cost to diverting carbon tax revenue toward compensation of specific sectors. Theory also suggests that firms should treat policy risk no differently from the way they treat the other risks they face as they do business. But politics may dictate otherwise; if so, the analysis here suggests that certain approaches may work better than others to ensure that relief is appropriately targeted at minimal cost.
    Keywords: carbon taxes, taxation, tax code, energy-intensive, trade-exposed industries
    JEL: H23 H25 Q54 Q58
    Date: 2013–10–07
  22. By: Francisco M. Gonzalez (Department of Economics, University of Waterloo); Jean-Francois Wen (Department of Economics, University of Calgary)
    Abstract: The development of the welfare state in the Western economies between 1930 and 1990 coincided with a puzzling pattern in the taxation of top incomes. Effective tax rates at the top increased sharply but then gradually decreased, even as social transfers continued rising. We propose a new theory of the development of the welfare state to explain these facts. Our main insight is that social insurance and top income taxation are substitutes for averting social confl?ict. We emphasize the role of the Great Depression as a source of aggregate risk, and argue that the rise of the welfare state can be understood as a process of exploiting efficiency gains in response to gradual technological improvements in the provision of social insurance. Our detailed arguments build on the policy histories of the United States, Great Britain, and Sweden.
    JEL: D30 H20 H50 P16
    Date: 2013–10
  23. By: Ana Paula Dourado
    Abstract: This paper analyses the question on whether a Hercules legislator would validly propose a global standard, in particular, exchange of information between tax officials and those taxpayers who have a connection with one of the countries involved. This suggestion covers tax matters, including tax crimes, and is being put forward by the Global Forum.In recent decades, a global legal discourse has spread, but this trend has also been confronted with the acknowledgment that plural legalities coexist in domestic boundaries. Validity of a tax reform implies taking into account binding non-state and supra-state legalities.Individual legalities in force in a certain state are the cause of an important tension, and can result in important obstacles to the validity of state law, if the latter is not the product of argumentative interaction. The risk that such interaction does not exist is higher in the case of supra-national legalities, as is the case of exchange of information.It is herein claimed that a Hercules legislator would propose exchange of information on tax matters as an international standard, as long as the taxpayers’ fundamental rights as acknowledged in rule-of-law states are not jeopardized. It is also suggested that transitional regimes should be adopted in respect of some States.
    Date: 2013–03–19
  24. By: Sebastian Gechert; Rafael Mentges
    Abstract: We show that fiscal multiplier estimations may be biased by movements in asset and credit markets, as they facilitate spurious correlations of changes in cyclically adjusted revenues and spending with GDP growth via wrong identifications and an omitted variable bias, thus overstating episodes of expansionary consolidations and downplaying contractionary consolidations. When controlling for asset and credit market movements in otherwise standard approaches to identification, we find multipliers to increase on average by 0.3 to 0.6 units. Consolidations are thus more likely to be contractionary and more harmful to growth than expected by some strands of the existing literature.
    Keywords: multiplier effects, fiscal policy, asset markets, credit markets
    JEL: C22 E62 H30
    Date: 2013

This nep-pbe issue is ©2013 by Keunjae Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.