New Economics Papers
on Public Finance
Issue of 2005‒05‒07
six papers chosen by

  1. Social Security Programs and Retirement around the World: Fiscal Implications, Introduction and Summary By Jonathan Gruber; David Wise
  2. Value-Added Taxes in Developing and Transitional Countries: Lessons and Questions By Richard M. Bird
  3. Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries By Richard M. Bird; Eric M. Zolt
  4. Tax Burden and the Mismeasurement of State Tax Policy By W. Robert Reed; Cynthia L. Rogers
  5. Tax Burden in Jamaica By Dillon Alleyne; James Alm; Roy Bahl; Sally Wallace
  6. Tax Policy Design in The Presence of Social Preferences: Some Experimental Evidence By Lucy F. Ackert; Jorge Martinez-Vazquez; Mark Rider

  1. By: Jonathan Gruber; David Wise
    Abstract: This is the introduction to and summary of Phase III of an international research project to study the relationship between social security provisions and retirement. The project relies on the work of a large group of economists in 12 countries who conduct the analysis for each of their countries. The first phase described the retirement incentives inherent in plan provisions and documented the strong relationship across countries between social security incentives to retire and the proportion of older persons out of the labor force. The second phase illustrated the large effects that changing plan provisions would have on the labor force participation of older workers. This third phase shows the consequent fiscal implications that extending labor force participation would have on net program costs -- reduced government social security benefit payments less increased government tax revenues. The findings are conveyed by simulating the implications of illustrative reforms. One reform increases benefit eligibility ages by three years. Another illustrative reform reduces actuarially benefits received before the normal retirement age. A common reform prescribes the same provisions in each country. The financial implications of the illustrative reforms are very large in many instances, often as much as 20 to 40 percent of current program costs. The savings amount to as much a 1 percent or more of country GDP. The results make clear that reforms like those considered in this volume can have very large fiscal implications for the cost of social security benefits as well as for government revenues engendered by changes in the labor force participation of older workers.
    JEL: F0 H0
    Date: 2005–05
  2. By: Richard M. Bird
    Abstract: The value-added tax has, in recent decades, become the most important single tax in most developing and transitional economies. This paper reviews some problems that have emerged as important as more experience has been gained with how VATs really work in many such countries and suggests some lines of research that need to be explored further to overcome those problems.
    Keywords: Value-Added Taxes in Developing and Transitional Countries
    Date: 2005–03–01
  3. By: Richard M. Bird; Eric M. Zolt
    Abstract: In developed countries, the income tax, especially the personal income tax, has long been viewed as the primary instrument for redistributing income and wealth. This article examines whether it makes sense for developing countries to rely on the income tax for redistributive purposes. We put forth three propositions. First, the personal income tax has done little to reduce inequality in many developing countries. This failure is not surprising given that in many countries personal income taxes are neither comprehensive nor very progressive—they often amount to little more than withholding taxes on labor income in the formal sector. Moreover, the personal income tax plays such a small role in the tax systems of developing countries that it would be unrealistic to believe that this tax could have a meaningful impact on distribution. Second, it is not costless to pretend to have a progressive personal income tax system. Tax systems generate real administrative, compliance, economic efficiency and political costs. The costs associated with badly designed and badly administered personal income tax systems likely exceed the costs associated with other taxes. There are opportunity costs as well. Third, given the ineffectiveness of the personal income tax, if countries want to use the fiscal system to reduce poverty or reduce inequality, alternative approaches merit consideration. Countries need to make better use of their expenditure programs in targeting resources to the poor. Given the dominance of taxes on consumption in the tax structure of developing countries, the distributional consequences of consumption taxes are of far greater importance than those of the personal income tax. Countries can also make greater use of benefit taxation and in particular fiscal decentralization may allow for better matching of those who benefit and those who pay for government activity. Finally, countries can consider alternatives to taxing income other than the current comprehensive income approach.
    Keywords: Redistribution, Taxation, Personal Income, and Developing Countries
    Date: 2005–03–01
  4. By: W. Robert Reed (Department of Economics, University of Oklahoma); Cynthia L. Rogers (Department of Economics, University of Oklahoma)
    Abstract: Tax Burden, defined as the ratio of total tax revenues over personal income, is prominently used to summarize state tax policy. We analyze the empirical relationship between changes in Tax Burden and changes in state tax policy from 1987 to 2000 – as measured by states’ own forecasts of the revenue impacts of tax legislation – and find that Tax Burden contains substantial measurement error. We explain this result by decomposing Tax Burden changes into three components: (1) changes in state tax policy, (2) income-induced changes in revenue that are unrelated to state tax policy, and (3) other factors that do not measure state tax policy. We empirically demonstrate the statistical significance of the second component, highlighting important consequences for studies that estimate the impact of taxes on economic growth.
    Keywords: Tax Policy, Fiscal Policy, Tax Burden, State Economic Development, Tax Rates
    JEL: E62 H20 H71 R11
    Date: 2005–05–03
  5. By: Dillon Alleyne; James Alm (Andrew Young School of Policy Studies, Georgia State University); Roy Bahl (Andrew Young School of Policy Studies, Georgia State University); Sally Wallace (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: The Government of Jamaica imposes a wide range of taxes on income, consumption, and property. An important consideration in any reform of these taxes is their impact of the distribution of income, or their tax burden. This staff paper presents background and analysis of the burden of the existing system of taxes. The question of “who bears the final burden of a tax?” is a fundamental one. Any tax will cause individuals and firms to change their behaviors, and the resulting changes in product and factor prices will affect the “incidence”, or the distributional effects, of the tax. Economists have devoted much attention to the question of tax incidence. Although there is wide agreement about the incidence of some taxes, such as excise or individual income taxes, the incidence of other taxes remains controversial. Even so, several basic “principles” of tax incidence should be kept in mind.
    Keywords: Jamaica, Tax Burden
    Date: 2004–12–01
  6. By: Lucy F. Ackert; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Mark Rider (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing between alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.
    Keywords: tax policy, social preferences, fairness
    Date: 2004–11–01

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.