nep-pub New Economics Papers
on Public Finance
Issue of 2005‒04‒24
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Structure in Developing Countries: Many Puzzles and a Possible Explanation By Roger Gordon; Wei Li
  2. The Pigouvian Tax Rule in the Presence of an Eco-Industry By Bernard Sinclair-Desgagné; Alain-Désiré Nimubona
  3. Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities By Maya Bacache-Beauvallet; Etienne Lehmann
  4. Optimal provision of public goods under imperfect intergovernmental competition By Ponzano, Ferruccio
  5. Tax system and tax reforms in India By Bernardi, Luigi; Fraschini, Angela

  1. By: Roger Gordon; Wei Li
    Abstract: Tax policies seen in developing countries are puzzling on many dimensions. To begin with, revenue/GDP is surprisingly small compared with that in developed economies. Taxes on labor income play a minor role. Taxes on consumption are important, but effective tax rates vary dramatically by firm, with many firms avoiding taxes entirely by operating through cash in the informal economy and others facing very high liabilities. Taxes on capital are an important source of revenue, as are tariffs and seignorage, all contrary to the theoretical literature. In this paper, we argue that all of these aspects of policy may be sensible responses if a government is able in practice to collect taxes only from those firms that make use of the financial sector. Through use of the financial sector, firms generate a paper trail, facilitating tax enforcement. The threat of disintermediation then limits how much can be collected in taxes. Taxes can most easily be collected from the firms most dependent on the financial sector, presumably capital-intensive firms. Given the resulting differential tax rates by sector, other policies would sensibly be used to offset these tax distortions. Tariff protection for capital-intensive firms is one. Inflation, imposing a tax on the cash economy is another.
    JEL: H21 O23 O17 F23
    Date: 2005–04
  2. By: Bernard Sinclair-Desgagné (HEC Montréal); Alain-Désiré Nimubona (Institute of Applied Economics, HEC Montréal)
    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.
    Keywords: Pigouvian taxes, Environment industry
    JEL: H23 L13
    Date: 2005–04
  3. By: Maya Bacache-Beauvallet (CEPREMAP, ENS Paris-Jourdan); Etienne Lehmann (ERMES, University of Paris 2 and IZA Bonn)
    Abstract: This article studies the political choice over the extent and the means of income redistribution between high and low skilled workers. Redistributive tools encompass fiscal transfers with negative income tax and minimum wage. Using fiscal instruments only is assumed optimal. We show that high skilled workers may favor a second-best minimum wage requirement. This is because minimum wage increases unemployment, hence the marginal cost of redistribution is higher which gives a pretext for high skilled workers to moderate low skilled workers claim for income redistribution.
    Keywords: unemployment, political economics, income redistribution, minimum wage
    JEL: D78 E24 H23 J38
    Date: 2005–04
  4. By: Ponzano, Ferruccio
    Abstract: The aim of this paper is to develop a model that includes two tiers of government providing public goods with the same tax base to finance them. Their rent is related to the level of competition. Citizens maximize their own utility starting from these different levels of competition. Therefore, they can decide to turn down the governments to induce them to behave efficiently. Moreover, governments can choose whether to accept the behaviour urged by citizens or to maximize their rent for a single period of office and consequently lose the next elections.
    JEL: H11 H21 H71 H77
    Date: 2005–04
  5. By: Bernardi, Luigi; Fraschini, Angela
    Abstract: This paper is part of a wider research on South-East Asia countries’ taxation carried on under the supervision of. V. Tanzi. India is a federal republic and a big, highly populated and poor country, which however since some years has entered the catching up stage of development and shows impressive rates of GDP growth. General Government budget is structurally imbalanced and public debt stays high. Public spending (about 25 percent of GDP) is mainly devoted to general services, defense, and the support of economic activities, rather than to public health and welfare programs. Total fiscal pressure (about 17 percent of GDP) is in line with per capita GDP and is shared evenly enough between central and states governments. The structure of the tax system is not much beyond the Musgravian “early stage”. A complex structure of taxes on goods and services is largely the main heading of the tax system and it is difficultly moving towards a VAT-kind structure. Direct taxes still are in an infant state, both as weight as well as structure. Import duties remain at not negligible levels. Social contributions are entirely lacking. A tax system of a country like India unavoidably raises more than one problem: foremost among these problems appear to be a too large dominance of a complex and obsolete indirect taxation and the fiscal relations among government layers. The road to updating and improving the Indian tax system has been entered since the early 1990s, but the reform is still largely to be accomplished. Introducing VAT – so successfully adopted in other developing countries – is the most striking but not the only example.
    JEL: H20 H24 H25 H29
    Date: 2005–04

This nep-pub issue is ©2005 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.