New Economics Papers
on Public Finance
Issue of 2005‒05‒14
four papers chosen by

  1. Corporate Income Tax and Tax Incentives By Mark Rider
  2. Economic Growth and the Household Optimal Income Tax Evasion. By Oscar Mauricio VALENCIA ARANA
  3. Optimal Wage Taxation when the Choice to Work Depends on Accumulated Human Capital By Kreider, Brent
  4. Taxes and Marriage: A Two-Sided Search Analysis By Hector Chade; Gustavo Ventura

  1. By: Mark Rider (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: The Corporate Income Tax (CIT) in Jamaica is an important source of revenue. In 2002, the share of CIT in total tax revenue was approximately 6.9 percent, having fallen from 12.7 percent in 1993. Although OECD countries generally collect about 10 percent of tax revenue from corporate taxes, the downward trending share exhibited by the CIT in Jamaica is generally consistent with international experience. In fact, the share in Jamaica may be greater than expected given the large number of tax incentives and administrative weaknesses in the enforcement of Jamaica’s CIT.
    Keywords: Jamaica, Corporate Income Tax,Tax Incentives
    Date: 2004–12–01
  2. By: Oscar Mauricio VALENCIA ARANA
    Abstract: This paper presents an analysis of the relationship between economic growth and income tax evasion. For this purpose we constructed a dynamic model with human capital in which income tax evasion is endogenous. The model captures the effects of income tax evasion on economic growth through three channels: 1) Income tax evasion alters the optimal path of consumption and savings 2) income tax evasion generates labor market distortions; 3) returns on assets are affected when tax evasion occurs. The concept of optimal policy against evasion is introduced. Based on the Ramsey policy approach, the income tax evasion is reformulated as particular case of endogenous incompleteness tax code. In this case, we found that the optimal income tax rate in the steady-state is different to zero. The model was calibrated for the 2000 Colombian economy. Counterfactual experiments show that different enforcement policies based on an increased probability of detection and punishment have a positive impact on welfare and growth. On the other hand, as income tax evasion increases so the capital cost goes up, the labor supply is reduced and economic growth and welfare decreases.
    Keywords: Income Tax Evasion
    Date: 2004–12–28
  3. By: Kreider, Brent
    Abstract: This paper studies how optimal wage tax conclusions from the classic life-cycle model of endogenous human capital accumulation are affected by relaxing a standard assumption that everyone works. In the standard model, the optimal wage tax is zero when wages are nonstochastic regardless of the impact of human capital on the future wage rate or the wage elasticity of labor hours. After allowing human capital accumulation to affect the extensive margin decision to work as well as the intensive number of labor hours to supply, distortionary wage taxation becomes desirable even with nonstochastic wages. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. To restore proper price signals, wage taxes should be negatively correlated with age. Results from previous models hold when the decision to work is treated as exogenous or premiums for transfers are actuarially tailored to human capital choices. Calibrating the model using data from the 2000 Current Population Survey, numerical simulations suggest that even modest extensive margin employment elasticities can be sufficient to substantially impact the magnitudes -- and even change the signs -- of optimal wage tax rates on prime-age workers.
    JEL: H2 H3 J2
    Date: 2005–05–11
  4. By: Hector Chade (W. P. Carey School of Business Department of Economics); Gustavo Ventura (University of Western Ontario)
    Abstract: This paper studies the effects of differential tax treatment toward married and single individuals in the US on marriage formation and composition, divorce and labor supply. We develop a marriage market model with search frictions and heterogeneous agents that is sufficiently rich to capture key elements of the problem under consideration. We then calibrate the model and use it to evaluate the quantitative effects of a number of tax reforms aimed at making the tax law neutral with respect to marital status. We find that reforms can have substantial effects on the labor supply of married females and on the degree of assortative mating.
    JEL: H2 D1

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