nep-pub New Economics Papers
on Public Finance
Issue of 2005‒01‒09
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Incentive Effect of Fiscal Equalization Transfers on Tax Policy By Thiess Büttner
  2. Normative Evaluation of Tax Policies: From Households to Individuals By Bargain, Olivier
  3. Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise By Bargain, Olivier; Moreau, Nicolas
  4. Capital Taxation, Growth, and Non-renewable Resources By Christian Groth; Poul Schou
  5. The Integration of Child Tax Credits and Welfare: Evidence from the National Child Benefit Program By Kevin Milligan; Mark Stabile
  6. Employment- and Growth Effects of Tax Reforms By Jochen Michaelis; Angela Birk

  1. By: Thiess Büttner
    Abstract: A theoretical analysis considers the impact of a typical system of redistributive \"fiscal equalization\" transfers on the taxing effort of local jurisdictions. More specifically, it shows that the marginal contribution rate, i.e. the rate at which an increase in the tax base is reducing those transfers, might be positively associated with the local tax rate while the volume of grants received is likely to be inversely related to the tax base. These predictions are tested in an empirical analysis of the tax policy of German municipalities. In order to identify the incentive effect the analysis exploits discontinuities in the rules of the fiscal equalization system as well as policy changes. The empirical results support the existence of an incentive effect, suggesting that the high marginal contribution rates induce the municipalities to raise their business tax rates significantly.
    Keywords: Fiscal Equalization, Tax Competition, Fiscal Federalism, Incentive Effect of Taxation, Regression Discontinuity
    JEL: H71 H77
    Date: 2005–01–05
  2. By: Bargain, Olivier (IZA Bonn and DELTA, Paris)
    Abstract: In this paper, we analyze the impact of a tax policy change on social welfare by using jointly a collective model of household labor supply and a microsimulation program of the French taxbenefit system. The collective approach allows studying the intrahousehold distribution so that for the first time, social welfare can be characterized using individual utilities rather than an ambiguous concept of household welfare. This way, the planner’s preferences address not only inter-household inequalities but also intra-household inequalities often neglected in the literature. The other contribution of the paper derives from a larger interpretation of labor supply behaviors which represent more than the simple work duration and incorporate unobserved dimensions related to effort or intensity at work. We simulate an extended version of the British Working Family Tax Credit on married couples in France. Two types of conclusions emerge. First, the reform is not desirable for low values (utilitarian) or high values (rawlsian) of the social inequality aversion but rather for an intermediary range. In effect, on the efficiency side, the reform induces strong disincentive effects on the participation of second-earners while on the equity side, it does not specifically target the poorest households. Second, we show that the choice of unit – household or individual – strongly condition the results of the normative analysis when departing in a reasonable way from the assumption of equal sharing within the household.
    Keywords: collective model, intrahousehold distribution, social welfare, household labor supply, microsimulation, tax reform
    JEL: C71 D13 D31 D63 H21 H31 J22
    Date: 2004–12
  3. By: Bargain, Olivier (IZA Bonn and DELTA, Paris); Moreau, Nicolas (Université Laval and CIRPÉE)
    Abstract: The literature on household behavior contains hardly any empirical research on the withinhousehold distributional effect of tax-benefit policies. We simulate this effect in the framework of a collective model of labor supply when shifting from a joint to an individual taxation system in France. We show that the net-of-tax relative earning potential of the wife is a significant determinant of intrahousehold negotiation but with very low elasticity. Consequently, the labor supply responses to the reform are entirely driven by the traditional substitution and income effects as in a unitary model. For some households only, the reform alters the intrahousehold distribution in a way that tends to change normative conclusions. A sensitivity analysis shows that the collective model would be required if the tax reform was both radical and of extended scope.
    Keywords: collective model, intrahousehold allocation, household labor supply, tax reform
    JEL: C71 D11 D12 H31 J22
    Date: 2005–01
  4. By: Christian Groth (Institute of Economics, University of Copenhagen); Poul Schou (Danish Rational Economic Agents Model (DREAM))
    Abstract: The conventional view within the endogenous growth literature is that interest income taxes impede economic growth and investment subsidies promote economic growth. The present paper lays out a simple framework to see whether this is still true when non-renewable resources enter the ”growth engine” in an essential way. It is not! The framework allows a rich set of determinants of longrun growth, including some fiscal policy measures, but interest income taxes and investment subsidies are not among these. The results not only contrast with the modern literature on taxes and endogenous growth, but also with observations in the literature from the 1970’s on non-renewable resources and taxation - observations which were not based on general equilibrium considerations.
    Keywords: non-renewable resources; endogenous growth; greenhouse effect; taxes; subsidies
    JEL: H2 O4 Q3
    Date: 2004–07
  5. By: Kevin Milligan; Mark Stabile
    Abstract: In 1998, the Canadian government introduced a new child tax credit. The innovation in the program was its integration with social assistance (welfare). Some provinces agreed to subtract the new federally-paid benefits from provincially-paid social assistance, partially lowering the welfare wall. Three provinces did not integrate benefits, providing a quasi-experimental framework for estimation. We find large changes in social assistance take-up and employment in provinces that provided the labour market incentives to do so. In our sample, the integration of benefits can account for around one third of the total decline in social assistance receipt between 1997 and 2000.
    Date: 2004–12
  6. By: Jochen Michaelis (Author-Workplace-Name: Department of Economics, University of Kassel); Angela Birk (Author-Workplace-Name: HWWA, University of Hamburg, Havard University, Department of Economics)
    Abstract: This paper explores how revenue-neutral tax reforms impact employment and economic growth in a model of endogenous growth and search frictions on the labor market. We analyze how savings and the incentive to create new jobs are affected by tax swaps between wage income taxes, payroll taxes, capital income taxes and taxes levied on capital costs. In our framework, the payroll tax is found to be neutral. If this tax is used to finance a cut in the capital income tax, we will observe an increase in both growth and, via the capitalization effect, employment. Most other tax reforms, however, imply a trade-off between employment and growth
    Keywords: search unemployment, growth, tax reform
    JEL: E6 H2 J6 O4
    Date: 2004–06

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