nep-pub New Economics Papers
on Public Finance
Issue of 2005‒03‒20
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation with Endogenous Insurance Markets By Mikhail Golosov; Aleh Tsyvinski
  2. Social welfare effects of tax-benefit reform under endogenous participation and unemployment By van Baalen Brigitte; Müller Tobias
  3. Tax avoidance and intra-family transfers By Nordblom, Katarina; Ohlsson, Henry
  4. The Evolution of Retirement By J. Ignacio Conde-Ruiz; Vincenzo Galasso; Paola Profeta

  1. By: Mikhail Golosov; Aleh Tsyvinski
    Abstract: We study optimal tax policy in a dynamic private information economy with endogenous private markets. We characterize efficient allocations and competitive equilibria. A standard assumption in the literature is that trades are observable by all agents. We show that in such an environment the competitive equilibrium is efficient. The only effect of government interventions is crowding out of private insurance. We then relax the assumption of observability of consumption and consider an environment with unobservable trades in competitive markets. We show that efficient allocations have the property that the marginal product of capital is different from the market interest rate associated with unobservable trades. In any competitive equilibrium without taxation, the marginal product of capital and the market interest rate are equated, so that competitive equilibria are not efficient. Taxation of capital income can be welfare-improving because such taxation introduces a wedge between market interest rates and the marginal product of capital and allows agents to obtain better insurance in private markets. Finally, we use plausibly calibrated numerical examples to compute optimal taxes and welfare gains and compare results to an economy with a restricted set of tax instruments, and to an economy with observable trades.
    JEL: E62 H21 H23 H53
    Date: 2005–03
  2. By: van Baalen Brigitte; Müller Tobias
    Abstract: This paper analyzes the effects of tax-benefit reforms in a framework integrating endogenous labor supply and unemployment. There is a discrete distribution of individuals’ productivities and labor supply decisions are limited to the participation decision. Unemployment is modeled in a search and matching framework with individual wage bargaining. We adopt an ordinal approach to social welfare comparisons and explore numerically various reform policies. For Switzerland, a participation income is shown to be an “uncontroversial” tax reform, improving social welfare according to any social welfare criterion displaying inequality aversion.
    Date: 2005–02
  3. By: Nordblom, Katarina (Department of Economics, School of Economics and Commercial Law, Göteborg University); Ohlsson, Henry (Department of Economics, Uppsala University)
    Abstract: To what extent do people avoid taxes on intra-family transfers (bequests and gifts), and how would integration (unification) of the different transfers taxes affect tax avoidance? These issues are important for families and their welfare, as well as for governments and their possibilities of raising revenue from transfer taxes. In this paper we study the effects of transfer taxes on altruistic parents' transfers to their children. Using a theoretical model we find that altruistic parents do not necessarily tax minimize. However, in some cases when they do, there is an infinitely large excess burden of a transfer tax. We also find that integration of transfer taxes reduces tax avoidance. All tax avoidance is eliminated with complete integration. <p>
    Keywords: tax avoidance; bequests; inheritances; inter vivos gifts; altruism
    JEL: D10 D64 D91
    Date: 2005–03–16
  4. By: J. Ignacio Conde-Ruiz; Vincenzo Galasso; Paola Profeta
    Abstract: We provide a long term perspective on the individual retirement behavior and on the future of early retirement. In a cross-country sample, we find that total pension spending depends positively on the degree of early retirement and on the share of elderly in the population, which increase the proportion of retirees, but has hardly any effect on the per-capita pension benefits. We show that in a Markovian political economic theoretical framework, in which incentives to retire early are embedded, a political equilibrium is characterized by an increasing sequence of social security contribution rates converging to a steady state and early retirement. Comparative statics suggest that aging and productivity slow-downs lead to higher taxes and more early retirement. However, when income effects are factored in, the model suggests that periods of stagnation - characterized by decreasing labor income - may lead middle aged individuals to postpone retirement

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