nep-pub New Economics Papers
on Public Finance
Issue of 2005‒03‒13
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ By Blomquist, Sören; Micheletto, Luca
  2. Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence By Orazio Attanasio; James Banks; Matthew Wakefield
  3. The Effect of Income Taxation on Consumption and Labor Supply By James P. Ziliak; Thomas J. Kniesner
  4. Second-Best Optimal Taxation of Capital and Labor in a Developing Economy By Cecilia Garcia Penalosa; Stephen J. Turnovsky
  5. Updating the UK's code for fiscal stability By Carl Emmerson; Chris Frayne; Sarah Love

  1. By: Blomquist, Sören (Department of Economics); Micheletto, Luca (Department of Economics)
    Abstract: Paternalism, merit goods and specific egalitarianism are concepts we sometimes meet in the literature. The thing in common is that the policy maker does not fully respect the consumer sovereignty principle and design policies according to some other criterion than individuals’ preferences. Using the self-selection approach to tax problems developed by Stiglitz (1982) and Stern (1982), the paper provides a characterization of the properties of an optimal redistributive mixed tax scheme in the general case when the government evaluates individuals’ well-being using a different utility function than the one maximized by private agents.
    Keywords: optimal taxation; behavioral economics; paternalism; merit goods; non-welfarism
    JEL: H21 H23
    Date: 2005–02–21
  2. By: Orazio Attanasio (Institute for Fiscal Studies and University College London); James Banks (Institute for Fiscal Studies and University College London); Matthew Wakefield (Institute for Fiscal Studies)
    Abstract: The adequacy of household saving for retirement has become a policy issue all around the world. The UK and US have been in the vanguard of those countries that have tried to encourage retirement saving by providing tax-favoured treatment for particular savings accounts. We consider empirical evidence from these two countries regarding the extent to which funds in some specific tax advantaged accounts (IRAs in the US, TESSAs and ISAs in the UK) represent new savings. Our best interpretation of this evidence is that: only relatively small fractions of these funds can be considered to be "new" saving and so these policies have been an expensive means of encouraging saving; there has been some deadweight loss from the policies associated with "reshuffling" of existing savings. Continuing improvements in data on individual financial behaviour create scope for future empirical analysis of incentives to save, both within the standard economic framework that we explain and exploit, and by considering extensions to and adaptations of it.
    Keywords: Saving, tax incentives to save, lifecycle model, household behaviour
    JEL: D91 H39
    Date: 2004–12
  3. By: James P. Ziliak; Thomas J. Kniesner (Center for Policy Research, Maxwell School, Syracuse University)
    Abstract: We estimate the incentive effects of income taxation in a life-cycle model of consumption and labor supply that relaxes the standard assumption of strong separability within periods. Our model permits identification of both within-period preference parameters and life-cycle preference parameters such as the inter-temporal substitution elasticity. Results indicate that consumption and hours worked are direct complements in utility, and both increase with an increase in the after-tax share and with a compensated increase in the net wage. The compensated net wage elasticity is about 0.3, nearly double the standard estimates for men in the United States that ignore within-period non-separability between consumption and hours and rely on linear preferences. Given our estimated inter-temporal elasticity of substitution of about -0.96, the Frisch specific substitution elasticities of consumption and labor supply with respect to the after-tax wage are about 0.1 and 0.5, indicating significant inter-temporal smoothing of utility. Depending on consumption measure, static estimates of the marginal welfare cost of revenue-neutral taxation are 6-20 percent, which is about half the estimated welfare cost when additivity between consumption and leisure is incorrectly imposed. [Revised November 2004]
    JEL: J22 H20
    Date: 2003–04
  4. By: Cecilia Garcia Penalosa (CNRS, GREQAM and IDEP); Stephen J. Turnovsky (University of Washington)
    Abstract: This paper examines how the tax burden in a developing economy should be distributed between capital income and labor income. We study a two-sector model, where the traditional sector is "informal" and consequently cannot be taxed by the government. In this set up, we find that the optimal (second-best) tax structure in order to raise a certain amount of revenue requires to tax capital income at least as much as labor income, and possibly more.
    Keywords: endogenous growth, optimal taxation, informal sector, developing economies.
    JEL: E62 O17 O23
    Date: 2003–05
  5. By: Carl Emmerson (Institute for Fiscal Studies); Chris Frayne (Institute for Fiscal Studies); Sarah Love (Institute for Fiscal Studies)
    Abstract: The 1998 Code for Fiscal Stability sets out the framework within which UK fiscal policy is now set. While having such a code does not make it easier for a Government to meet its fiscal objectives, it may improve the economic credibility of the policy process. To date the Code has generally worked well, and in any case many of the Treasury’s practices exceed the minimum requirements of the Code. However, improvements could be made in the light of recent experiences. In particular it would be preferable for less emphasis to be placed on the precise forecasts for fiscal aggregates and greater emphasis to be placed on the magnitude of the risks to those forecasts. Using the projections contained in the March 2004 Budget, and information on the size of errors made in the past, we estimate that there is now a 60% chance that the Chancellor’s “golden rule” will be met without further tax increases or spending cuts. This compares to 74% for the forecast made by the Treasury 12 months earlier. As well as clarifying how cautious forecasts are, the uncertainty surrounding projections for fiscal aggregates also has implications for the way in which progress towards any fiscal rules should be interpreted.
    JEL: E62 H62
    Date: 2004–11

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