nep-pub New Economics Papers
on Public Finance
Issue of 2005‒04‒16
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Pigouvian Tax Rule in the Presence of an Eco-Industry By Alain-Désiré Nimubona; Bernard Sinclair-Desgagné
  2. Capital Gains Taxes, Irreversible Investment, and Capital Structure. By Norman Schürhoff
  3. Reforming the Taxation of Human Capital: A Modest Proposal for Promoting Economic Growth By Paul A. David
  4. Optimal Taxation with Commitment in a Two-sector Neoclassical Economy By Sheikh Selim
  5. Labor supply when tax evasion is an option By Jørgensen, Øystein; Ognedal, Tone; Strøm, Steinar
  6. Review of Privade Provided Public Goods Literature By Daniel Goulao

  1. By: Alain-Désiré Nimubona; Bernard Sinclair-Desgagné
    Abstract: Pollution abatement goods and services are now largely being delivered by a specialized "eco-industry." This note reconsiders Pigouvian taxes in this context. We find that the optimal emission tax will depart from the marginal social cost of pollution according to the polluters' and the environment firms' relative market power. <P>La production des biens et services destinés à reduire la pollution incombe actuellement souvent à des firmes spécialisées qui forment ce que l'on appelle maintenant l'« éco-industrie ». Cette note reconsidère les taxes pigouviennes dans ce contexte. Il est démontré que la taxe optimale sur les émissions polluantes divergera du coût social marginal de la pollution selon les pouvoirs de marché relatifs des pollueurs et des entreprises environnementales.
    Keywords: Pigouvian taxes, environment industry, taxes pigouviennes, industries de l'environnement
    JEL: H23 L13
    Date: 2005–04–01
  2. By: Norman Schürhoff (HEC, University of Lausanne, FAME.)
    Abstract: This paper studies the corporate policy distortions caused by realization-based capital gains taxation at the personal level in a dynamic trade-off theory model. The Lock-in effect of embedded capital gains creates severe conflicts of interest between incumbent and new investors. The firm's optimal policy exhibits path-dependency and non-stationarity, since the taxe basis of the firm's owners is a valuable conditioning variable for corporate decisions. Ex-ante identical firms follow very different investment and financial policies depending on their stock price evolution. Firms delay irreversible investment further the lower tax basis of their owners falls. The reason is the investment hedge provided by personal tax loss offsets weakens as investors reset their basis. Capital gains taxation also creates incentives to time equitzy issues. Firms employ more equity in their capital structure the higher the stock price-to-basis ratio, since locked-in investors with out-of-the-money tax timing options value the firm less than the market. The value gain from conditioning on the owner's tax basis is substantial. Using simulated data I show the combined effects are consistent with recent empirical evidence on the relation between leverage, Tobin's Q, and past performance.
    Keywords: Capital Gains Taxation, Real Options, Capital Structure, Trade-off Theory, Market Timing.
    JEL: G3 G32 H24 H32
  3. By: Paul A. David (Stanford University & University of Oxford)
    Abstract: A new scheme of personal income tax reform would eliminate the inefficiencies arising from differences in the tax treatment of investments in intangible human capital and other types of capital formation. It also would offset the exacerbation of those distortions caused by progressive taxation, without requiring abandonment of the latter principle. The proposed incremental reform of the personal income tax regime would permit full deductibility of private costs of education and training, but defer the exercise of the deduction credits. The novel instrument for achieving these objectives is an individually held, non- transferable asset: an untaxed, interest-bearing educational (expense) deduction account -- christened the “UIBEDA,” and pronounced: “we- bedda.” Under plausibly realistic assumptions about the time profile of education-associated earnings differentials, and the progressiveness of tax rate schedules, it is feasible for the Treasury adopting such a scheme to satisfy an intertemporal balanced budget constraint, while in effect acting as a financial intermediary in the market for human capital investments. The UIBEDA scheme facilitates shifting from direct educational subsidies to the use of publicly subsidized student loans, and also can be readily extended to promote selective immigration of workers who have incurred indebtedness for human capital investments abroad.
    JEL: I
    Date: 2005–02–10
  4. By: Sheikh Selim (University of Southampton)
    Abstract: This paper examines dynamic optimal income taxation problem in a two- sector neoclassical model where the government is able to commit to a sequence of tax plans for future. It finds that (1) while it is optimal to set a zero long run capital tax for the capital goods sector, steady state optimal capital tax can be nonzero in the consumption goods sector; (2) if the government faces an ex ante constraint of setting equal factor income taxes, the optimal levels of both capital tax rates are nonzero. The distortion created by the nonzero capital tax in consumption goods sector, given the other capital tax is set at zero, is in no way explosive in nature, since economic agents can avoid the compounding tax liabilities simply by shifting depreciated capital.
    Keywords: Optimal Taxation, Primal Approach, Two-sector Model, Ramsey Problem.
    JEL: H
    Date: 2005–02–21
  5. By: Jørgensen, Øystein (Dept. of Economics, University of Oslo); Ognedal, Tone (Dept. of Economics, University of Oslo); Strøm, Steinar (Dept. of Economics, University of Oslo)
    Abstract: We estimate labor supply when tax evasion is an option, using a discrete choice model on pooled Norwegian survey data from 1980 and 2001. Direct labor supply elasticities, conditional on sectors, are in the range of 0.2-0.4. The elasticities are higher for work that is not registered for taxation, than for registered work. Overall wage increases have a positive impact on the supply of registered work and a negative impact on supply of unregistered work. In addition to economic factors such as wages and tax rates, also social norms and opportunities for tax evasion at the work place have an impact on the supply of unregistered labor. The model is used to simulate the impact on labor supply of changes in the tax structure, such as the lowering of marginal tax rates. The fraction of the population who did unreported work was reduced from 1980 to 2001. Lower and less progressive tax rates after 1980 have contributed to this reduction. Although taxes matter for supply of both reported and non-reported labor, the impact is not strong. Social norms and opportunities for tax evasion at the work place are also important in explaining the change.
    Keywords: Labor supply; tax evasion; survey data; microeconometrics
    JEL: C25 D12 D81 H26 J22
    Date: 2005–04–06
  6. By: Daniel Goulao (Department of Economics, University of Wisconsin- Madison)
    Abstract: The intention is to do a summary of the private provision of public goods literature; it also has the goal of seeing that there is no match between the classic theory predictions and the reality and empirical data. Another objective is to find within the literature aspects not studied yet, and so indicate future research topics
    Keywords: Public Goods
    JEL: D6 D7 H
    Date: 2005–01–25

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