nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒01‒14
ten papers chosen by
Thomas Andrén

  1. Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy By Hori, Takeo; Maebayashi, Noritaka; Morimoto, Keiichi
  2. Is the marginal cost of public funds equal to one? By Bjart Holtsmark
  3. Collusive tax evasion by employers and employees. Evidence from a randomized fi eld experiment in Norway By Marie Bjørneby; Annette Alstadsæter; Kjetil Telle
  4. Does Nonlinear Taxation Stabilize Small Open Economies? By Been-Lon Chen; Yunfang Hu; Kazuo Mino
  5. On the political economy of income taxation By Berliant, Marcus; Gouveia, Miguel
  6. Local waste taxes in Italy: benefit or (hidden) wealth taxation? By Giovanna Messina; Marco Savegnago; Andrea Sechi
  7. French Favored Redistributions Derived From Surveys: a Political Assessment of Optimal Tax Theory By Adrien Fabre
  8. Effects of higher required rates of return on the tax take in an oil province By Lars Lindholt
  9. A Progressive Consumption Tax - an Important Instrument for Stabilizing Business Cycles, or just an Exotic Idea? By Aleksandar Vasilev
  10. Name and shame? Evidence from the European Union tax haven blacklist By Polakova, Aija

  1. By: Hori, Takeo; Maebayashi, Noritaka; Morimoto, Keiichi
    Abstract: We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant.
    Keywords: corporate income tax, tax evasion, growth, welfare
    JEL: H21 H26 O40
    Date: 2018–12–22
  2. By: Bjart Holtsmark (Statistics Norway)
    Abstract: In a recent article Bas Jacobs found that the marginal cost of public funds (MCF) is one when taxation gives second best resource allocation. This conclusion is based on a claim that there are certain shortcomings with the standard definition of MCF, for example that the size and sign of the standard MCF measure is sensitive to the choice of the untaxed good. A less frequently used definition of MCF is therefore applied instead. If a lump-sum tax is a marginal source for public revenue and taxation is optimal, MCF is one with the proposed definition. The contribution of the present paper is two-fold. First, it finds the standard MCF-measure is not sensitive to the choice of the untaxed good. Second, it finds that the proposed alternative definition has undesirable properties, for example that it could give negative MCF-measures along the upward sloping part of the Laffer curve and is sensitive to the choice of the untaxed good also in cases where this does not make sense. The present paper therefore concludes that there is a weak basis for the conclusion that MCF is one with optimal taxation.
    Keywords: Marginal cost of public funds; taxation; lump-sum taxes; public goods
    JEL: H20 H40 H50
    Date: 2019–01
  3. By: Marie Bjørneby; Annette Alstadsæter; Kjetil Telle (Statistics Norway)
    Abstract: Third-party reporting and employers’ tax withholding are powerful compliance mechanisms, as long as the employer and employee do not collude to evade. Using data from randomly assigned on-site audits among 2,462 Norwegian firms, we provide evidence of collusive tax evasion. We find that firms assigned to be audited increased their subsequent wage reporting on behalf of their employees by 18 percent relative to firms assigned to the control group. The effect is more pronounced among small firms with few employees. Our results document the limitations of third-party reporting, but also that these limitations can be counteracted by relatively inexpensive on-site audits.
    Keywords: collaborative tax evasion; collusive tax evasion; random audits; undeclared work; third-party reporting
    JEL: E26 H26 H32
    Date: 2018–12
  4. By: Been-Lon Chen (Institute of Economics, Academia Sinica); Yunfang Hu (Graduate School of Economics, Kobe University); Kazuo Mino (Faculty of Economics, Doshisha University)
    Abstract: This paper examines the stabilization effect of income taxation rules in small open economies. We show that if endogenous growth is not allowed, belief-driven fl?uctuation will not emerge, but the economy displays total instability under certain conditions and nonlinear income tax may recover saddle point stability. If endogenous growth is possible and if the taxation rule specifi?es the rate of income tax held in the balanced growth equi- librium, then equilibrium indeterminacy will not arise either. However, if the long run tax rate is not predetermined, then, equilibrium path of the economy may be indeterminate, and an appropriate taxation rule can establish determinacy.
    Keywords: Taxation Rule, Indeterminacy, Small Open Economy, Endogenous Growth
    JEL: E62 O41
    Date: 2018–08
  5. By: Berliant, Marcus; Gouveia, Miguel
    Abstract: The literatures dealing with voting, optimal income taxation, implementation, and pure public goods are integrated here to address the problem of voting over income taxes and public goods. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realizations of the abilities of consumers drawn from a known distribution, but must meet the realization-dependent budget. Even though the space of alternatives is infinite dimensional, conditions on primitives are found to assure existence of a majority rule equilibrium when agents vote over both a public good and income taxes to finance it.
    Keywords: Voting; Income taxation; Public good
    JEL: D72 D82 H21 H41
    Date: 2018–12–12
  6. By: Giovanna Messina (Bank of Italy); Marco Savegnago (Bank of Italy); Andrea Sechi (Bank of Italy)
    Abstract: Waste management can be financed through user charges, in the form of fees related to the amount of waste produced. Such fees would lead to positive effects for local public finance as well as for the environment. In Italy waste management is instead financed through a local tax (Ta.ri.), which is essentially a wealth tax. The paper examines Ta.ri. both from an efficiency and from an equity point of view, by means of a simulation using the Bank of Italy survey on household income and wealth. Our results indicate that Ta.ri. cannot discriminate among families according to the amount of waste they produce and that this tax weighs more heavily on poorer families. If waste taxation were redesigned so as to become more similar to a fee, tax payers would be encouraged to be more responsible in their use of resources, and the regressive impact of the current system of taxation would then disappear.
    Keywords: local public finance, efficiency, equity
    JEL: H71 H23
  7. By: Adrien Fabre (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Keywords: Preferences for redistribution,Desired tax,Income tax rates,Income distribution,France
    Date: 2018–12
  8. By: Lars Lindholt (Statistics Norway)
    Abstract: For different reasons the oil companies might apply higher required rates of return than they did some years ago, and this will have consequences for investments and tax revenue in oil provinces. By applying various required rates of return as well as various oil prices, this study derives future Norwegian tax revenue during 2018-2050 by using a partial equilibrium model for the global oil market. The model explicitly accounts for reserves, development and production. Both investment in new reserves and production are profit driven. With rising required rates of return less of the high cost reserves become profitable to develop and investments decline. Because the government in practice carries a large fraction of the investments, less investment in a period increases the tax base and the tax income. The initial effect is offset by a subsequent reduction in production which has a negative effect on future taxes. The result is that increasing required rates of return will lead to small variations in net present value of total tax revenue. With lower oil prices, tax take increases significantly when required rates of return rise.
    Keywords: Norwegian continental shelf; oil market; rates of return; fiscal policy; tax take; equilibrium model; firm behaviour
    JEL: H21 H32 L20 Q38
    Date: 2019–01
  9. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical uctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, progressive consumption taxation, Bulgaria
    JEL: E24 E32
    Date: 2018–12
  10. By: Polakova, Aija (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: I study publication of the European Union (EU) tax haven blacklist on December 5, 2017 to examine whether and how the use of recognized tax havens affects firm value. I find that the tax haven naming and shaming by the EU was associated with a negative stock price reaction of firms with tax haven affliates. The largest reaction was for those tax havens, for which it was not foreseeable that they would be included in the blacklist. Retail firms experienced a larger decrease in share price than firms in other industries, which is consistent with a potential consumer backlash. Also more tax aggressive firms faced more negative returns, which suggests that investors expect firms might be audited or fined for past or overly aggressive tax avoidance. The negative reaction was less pronounced in countries with low levels of investor protection and weakly-governed firms with substantial conflicts of interest between principals and shareholders. This is consistent with increased scrutiny and potential for countermeasures associated with the blacklist, which reduce opportunities for managerial wealth diversion.
    Keywords: Event study; governance; tax avoidance; tax haven
    JEL: G12 G32 H25 H26
    Date: 2018–12–14

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