nep-pub New Economics Papers
on Public Finance
Issue of 2004‒12‒12
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Voting on pensions : a survey By De Walque,G.
  2. Pensions and external effects of ageing; effects on distribution By Kruse, Agneta; Nyberg, Kristian
  3. Estimating Post-tax Social Insurance Benefits: Validity Problems in Comparative Analyses of Net Income Components from Household Income Data By Ferrarini, Tommy; Nelson, Kenneth
  4. Heterogeneity and the Voluntary Provision of Public Goods By Kenneth S. Chan; Stuart Mestelman; Rob Moir; R. Andrew Muller
  5. Universal Pensions in Mauritius: Lessons for the Rest of Us By Larry Willmore
  6. Administrative Dimensions of Tax Reform By Richard M. Bird
  7. Corporation Tax Asymmetries and Firm-Level Investment in Canada By Pierre-Pascal Gendron; Gordon Anderson; Jack M. Mintz
  8. Taxing Financial Activity By Jack M. Mintz
  9. Public Good Provision nad the Comparative Statics By Craig Brett; John A. Weymark
  10. Pension reform, assets returns and wealth distribution By Falilou Fall

  1. By: De Walque,G. (Nationale Bank van Belgie)
    Date: 2004
  2. By: Kruse, Agneta (Department of Economics, Lund University); Nyberg, Kristian (National Board of Social Insurance)
    Abstract: Ageing gives rise to concern about the sustainability of pay-as-you-go pension systems. One reform option suggested is to make the system actuarial by a tight connection between contributions and benefits. The incentives for the individual will then coincide with the interest of the pension collective. However, the individual actions – fertility decisions, working hours, timing of retirement – also contain a collective part not taken into consideration in the individual’s utility maximisation, a 1/N problem. As pay-as you-go systems are indexed by growth, the index (rate of return) is influenced by these actions even if the system is ‘actuarially fair’. We trace the effects of changes in fertility and early exit/changes in working hours on different generations in an overlapping generation model. The economic model (a stylised model of the economy in aggregate and the pension system) is fitted into a simulation model. We show that the collective effect /external effects are far from negligible. Different measures to cope with these effects are discussed.
    Keywords: pensions; demographics; external effects; OLG-model
    JEL: D62 H55 J26
    Date: 2004–12–02
  3. By: Ferrarini, Tommy (Swedish Institute for Social Research, Stockholm University); Nelson, Kenneth (Swedish Institute for Social Research, Stockholm University)
    Abstract: Comparative household micro income databases do not report the level of social transfers after taxation. Consequently, disaggregated redistributive analyses of the welfare state are based on gross income components. In most countries, however, social insurance benefits are subject to taxation. In such instances, the level and equalising effect of social insurance to income inequality are overestimated, both in absolute terms and in relation to nontaxable benefits. One way to avoid this problem is to estimate the level of net social insurance by the use of a so-called proportional tax estimation technique. This technique, however, causes a misspecification of the level of net social insurance in cases where taxation is established at the individual level. In this paper we therefore apply the proportional tax estimation technique for validity analyses on household income data. The question is to what extent this estimation of taxes misspecifies the level of net social insurance. It is found that the proportional tax estimation is viable when separating social and fiscal policies in comparative analyses on household micro income data. The underestimation of the level of net social insurance which is due to the application of the proportional tax estimation technique is negligible compared with the overestimation occurring from not taking taxes into account.
    Keywords: Welfare state; Social policy; social insurance; income taxation; inequality; redistribution; comparative.
    Date: 2002–11–01
  4. By: Kenneth S. Chan; Stuart Mestelman; Rob Moir; R. Andrew Muller
    Abstract: We investigate the effects of heterogeneity, incomplete information and communication on aggregate contributions to a public good using the voluntary contribution mechanism in a nonlinear laboratory environment. One-dimensional heterogeneity (heterogeneity in income or preferences) and two-dimensional heterogeneity (heterogeneity in income and preferences) both increase voluntary contributions. The effect is greatest when information is incomplete in the sense that subjects do not know each other’s payoffs. Incomplete information also reduces contributions in the homogeneous case. Communication reverses the relative importance of oneand two-dimensional heterogeneity in promoting cooperation.
    Date: 1998–04
  5. By: Larry Willmore (International Institute for Applied Systems Analysis)
    Abstract: That the Government of Mauritius provides nearly every resident over the age of 60 with a non-contributory, basic pension is one of the best-kept secrets in the world. The scheme dates from 1950 and became universal in 1958, following abolition of a means test. Remarkably, introduction of a compulsory, contributory scheme for workers in the private sector appears to have strengthened the non-contributory regime without affecting its universality. This paper examines the past and future of non-contributory, universal pensions in Mauritius, and draws lessons that might be useful for other countries, especially those in the developing world. United Nations DESA Discussion Paper No.32, April 2003.
    Keywords: public pensions, social security, means test, targeting, demographic ageing, Mauritius
    JEL: H55
    Date: 2004–12–04
  6. By: Richard M. Bird (International Tax Program, Rotman School of Management, University of Toronto)
    Abstract: The best tax policy in the world is worth little if it cannot be implemented effectively. Tax policy design in developing countries must therefore take the administrative dimension of taxation carefully into account. What can be done may to a considerable extent determine what is done in any country. In many developing countries, for example, there is a large traditional agricultural sector that is not easily taxed. In many countries, there is often a significant informal (shadow) economy that also is largely outside the formal tax structure. The potentially reachable tax base thus constitutes a smaller portion of total economic activity than in developed countries. This paper discusses the relationship between tax policy and tax administration. When can policy lead administration? When must policy initiatives wait on administrative reform? How exactly can both sides of the policy and administrative agenda be advanced together? The paper also sets out the broad outlines of administrative reform -- the essential conditions for such reform, its principal components, and its limits as a way of solving critical tax problems. Several key issues in tax administration, with particular attention to their implications for successful tax policy reform and implementation are reviewed. Finally, the paper brings together some of the earlier discussion and provides a short case study of the interaction of tax policy and tax administration in the Polish Tax reform of the early 1990s.
    Keywords: tax administration, tax policy, tax reform, developing countries, Poland, Polish tax reform
    Date: 2003–04
  7. By: Pierre-Pascal Gendron (The Business School, Humber Institute of Technology & Advanced Learning and International Tax Program, Rotman School of Management, University of Toronto); Gordon Anderson (Department of Economics, University of Toronto); Jack M. Mintz (Rotman School of Management, University of Toronto)
    Abstract: An empirical model is developed to estimate the probability of a given tax status based on firm characteristics. A structural switching regression model of the firm’s demand for capital goods is next specified and incorporates expressions for the user cost of capital which account for tax asymmetries. The switching model, which incorporates the estimated tax status probabilities, is used to investigate the potential endogeneity of the cost of capital using a balanced panel of Canadian companies over the period 1976-94. Empirical results suggest that tax status affects capital acquisition behaviour.
    Keywords: Corporation Tax, Losses, Investment, Regime Switching
    JEL: H25 E22
    Date: 2003–10
  8. By: Jack M. Mintz (Rotman School of Management, University of Toronto, and the C.D. Howe Institute)
    Abstract: In most countries, substantial business activity is related to financial intermediation: banking, trusts, investment companies and insurance. Financial businesses play a crucial role in the economy by matching lenders with borrowers as well as facilitating governance of businesses through close monitoring of funds lent to businesses. Financial institutions also reduce risk faced by investors by pooling investments over many different types of business activities and insuring against property, casualty and death risks. A significant part of the financial sector is regulated but an impressive array of financial activities is undertaken by unregulated and informal parts of the economy. Unlike other industries, tax systems often treat financial activity in a special way. Why is this so? In this module, I shall review the rationale and technical issues related to the taxation of financial activity by answering the following questions: What is financial intermediation? What are the roles of financial service providers in the economy so as to guide policy makers regarding the appropriate design of taxes? How are individual types of taxes designed to deal with special considerations related to financial activities? What are the economic impacts of taxes on financial activity?
    Keywords: Financial institutions, taxation, financial intermediation, financial activity, policy, tax design
    Date: 2003–12
  9. By: Craig Brett (Department of Economics, Mount Allison University); John A. Weymark (Department of Economics, Vanderbilt University)
    Abstract: Comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs an income tax schedule for redistributive purposes and provides a public good optimally. There are two types of individuals, distinguished by their skill levels, who have the same quasilinear preferences for labour supply and the consumption of a private and a public good. The parameters for which comparative statics are obtained are the weights in a weighted utilitarian social welfare function, the prices of the private and public goods, a taste parameter that measures the onerousness of working, and the individual skill levels.
    Keywords: Optimal income taxation, public goods, comparative statics
    JEL: D82 H21 H41
    Date: 2004–06
  10. By: Falilou Fall (EUREQua)
    Abstract: In OLG framework, it is generally admitted that PAYG pension system generates a lower capital accumulation, a higher level of interest rate but is more inequality reducing. By taking into account different assets returns and unequal acces to them, we find that the PAYG pension system generates lower level of interest rate and increases wealth inequality. By using Matsuyama's (2000) technology that generates dynamic endogenous inequality, we represent the bequest and saving behavior of the agents in an OLG model. This allows us to characterize the optimal investment choice of agents across two assets as a function of their initial endowment and a unique inheritance threshold depending on the equilibrium interest rate. This inheritance threshold divides the population into two categories : the rich-borrowers and the poor-lenders. In this context, we find that, the effect of increasing the contribution rate to the pension system is to increase inequality. Indeed, it increases the number of constrained agents and decreases the equilibrium interest rate. More the initial wealth distribution is egalitarian, more these effects are amplified. As the interest rate is the lending rate of poor-constrained agents, they lose from the reform while unconstrained-rich agents benefit from the reform since the decrease of the interest rate increases the net return of their investment. Unconstrained-rich agents benefit from the reform at the expense of constrained-poor agents.
    Keywords: Pension reform, inequality, incomplete markets, savings, wealth distribution
    JEL: D31 D52 D91 H24 H55
    Date: 2004–03

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