nep-pub New Economics Papers
on Public Finance
Issue of 2005‒09‒11
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Comparison of Alternative Tax Bases By John Freebairn
  2. The Dot-Com Bubble the Bush Deficits, and the U.S. Current Account By Aart Kraay; Jaume Ventura
  3. Tax Competition and Tax Revenues By Alfred Boss
  4. Top Incomes in Sweden over the Twentieth Century By Roine, Jesper; Waldenström, Daniel
  5. Institutions, Corruption and Tax Evasion in the Unofficial Economy By Hibbs Jr., Douglas A.; Piculescu, Violeta
  6. Asymmetric Information, Tax Evasion and Alternative Instruments of Government Revenue By Rangan Gupta

  1. By: John Freebairn (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: The revenue, efficiency, equity and operating costs properties of alternative tax bases or taxable sums are compared and contrasted. Initially the assessment is made for generic, comprehensive tax bases on income and consumption flows, wealth stocks, and on transactions. On the criteria of efficiency and equity, there are unresolved conceptual and empirical arguments in choosing between income, consumption and wealth tax bases, but general revenue raising transaction taxes are inferior. In practice, including in current Australia, the different tax bases are far from comprehensive because of the many exemptions and deductions. On all good tax design criteria, the case is made to broaden the tax bases for income, the GST, payroll and land taxes; special purpose transaction taxes to counter market failures should be redesigned; and conveyance duties and other stamp duties should be removed.
    Date: 2005–08
  2. By: Aart Kraay; Jaume Ventura
    Abstract: Over the past decade the US has experienced widening current account deficits and a steady deterioration of its net foreign asset position. During the second half of the 1990s, this deterioration was fueled by foreign investment in a booming US stock market. During the first half of the 2000s, this deterioration has been fuelled by foreign purchases of rapidly increasing US government debt. A somewhat surprising aspect of the current debate is that stock market movements and fiscal policy choices have been largely treated as unrelated events. Stock market movements are usually interpreted as reflecting exogenous changes in perceived or real productivity, while budget deficits are usually understood as a mainly political decision. We challenge this view here and develop two alternative interpretations. Both are based on the notion that a bubble the 'dot-com' bubble) has been driving the stock market, but differ in their assumptions about the interactions between this bubble and fiscal policy (the 'Bush' deficits). The 'benevolent' view holds that a change in investor sentiment led to the collapse of the dot-com bubble and the Bush deficits were a welfare-improving policy response to this event. The 'cynical' view holds instead that the Bush deficits led to the collapse of the dot-com bubble as the new administration tried to appropriate rents from foreign investors. We discuss the implications of each of these views for the future evolution of the US economy and, in particular, its net foreign asset position.
    JEL: F21 F32 F36
    Date: 2005–08
  3. By: Alfred Boss
    Abstract: It is often feared that tax competition might lead to a “race to the bottom”. The consequence of a decline of tax rates on capital income would be shrinking capital income tax revenues and difficulties for national governments to perform their usual tasks. The paper analyzes what happened to tax revenues in a lot of OECD countries. It turns out that taxes on capital income contribute to the financing of public expenditures in a more or less unchanged extent; in addition, there are no significant changes of the level and the structure of total tax revenues.
    Keywords: Tax competition, „race to the bottom“, income tax revenues
    JEL: H20 H87
    Date: 2005–07
  4. By: Roine, Jesper (Dept. of Economics, Stockholm School of Economics); Waldenström, Daniel (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper presents homogenous series of top income shares in Sweden from 1903 to 2003 using individual tax returns data. We find that Swedish top incomes have developed more similarly to the US, Canada and the UK than to other continental European countries when capital gains are included. The top income shares are U-shaped over time, falling steadily until around 1980 when they start increasing again. Around 2000 they reach levels similar to those found around 1950, before the expansion of the Swedish welfare state. However, unlike the Anglo-Saxon countries, where the recent increases were mainly driven by increased wage earnings inequality, Swedish top income shares have risen almost exclusively due to capital gains, a finding consistent with relatively high marginal wage taxes and internationally high price increases in financial and real estate markets since 1980. When excluding capital gains the increase in top income shares since 1980 almost disappears and the Swedish experience looks more like that of continental Europe. Furthermore, we also find that the largest decrease of top income shares happens between 1935 and the beginning of the 1950s, but not (as in the US and in France) during the war years, but before 1939 and after 1945 suggesting that the Swedish development was more driven by policy than by exogenous shocks.
    Keywords: Income inequality; Top incomes; Sweden; Taxation
    JEL: D31 H20 J30 N30
    Date: 2005–08–15
  5. By: Hibbs Jr., Douglas A. (CEFOS, Göteborg University); Piculescu, Violeta (Department of Economics, School of Economics and Commercial Law, Göteborg University)
    Abstract: In this paper we propose a model of how institutional benefits, taxation and government regulations affect the productive activity of private enterprises. We consider an environment in which public officials enforcing tax and regulatory obligations are potentially corruptible, and markets for corruption may therefore arise that give firms the option of producing unofficially and evading taxes and regulations. By contrast to some previous studies that view corruption and bribery as forces driving firms out of official production into the underground economy, our model features the idea that the ‘grabbing hands’ of corrupt bureaucrats may alternatively serve as ‘helping hands’ allowing firms to exploit profitable opportunities in the unofficial sector. And contrary to a traditional view maintaining that high tax rates are intrinsically a major cause of large shadow economies, our model implies that incentives to evade taxation and produce underground depend on statutory tax rates relative to firm-specific thresholds of tax toleration. Tax toleration is determined, among other things, by firm-specific institutional benefits available to official producers and the costs of corruption required to produce unofficially. Some core predictions of the model concerning the determinants of tax toleration and the relative size of unofficial activity and tax evasion receive broad support from empirical analyses based on firm-level data from the World Business Environment Surveys sponsored by the World Bank. <p>
    Keywords: institutions; corruption; tax evasion; tax toleration; unofficial economy; underground economy; black economy; WEBS
    JEL: D21 H26 K42 O17
    Date: 2005–08–23
  6. By: Rangan Gupta (University of Connecticut and University of Pretoria)
    Abstract: Using a pure-exchange overlapping generations model, characterized with tax evasion and information asymmetry between the government (the social planner) and the financial intermediaries, we try and seek for the optimal tax and seigniorage plans, derived from the welfare maximizing objective of the social planner. We show that irrespective of whether the economy is characterized by tax evasion, or asymmetric information, a benevolent social planner, maximizing welfare and simultaneously financing the budget constraint, should optimally rely on explicit rather than implicit taxation.
    Keywords: Tax evasion; Information Asymmetry in Financial Markets
    JEL: E63
    Date: 2005–07

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