nep-pub New Economics Papers
on Public Finance
Issue of 2005‒12‒20
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax-tariff reform with costs of tax administration By Knud Jørgen Munk
  2. Double informational asymmetry, signaling, and environmental taxes By Manel Antelo
  3. Taxation and the Financial Structure of German Outbound FDI By Jack Mintz; Alfons Weichenrieder
  4. Nordic Dual Income Taxation of Entrepreneurs By Vesa Kanniainen; Seppo Kari; Jouko Ylä-Liedenpohja
  5. Income Taxation, Tuition Subsidies, and Choice of Occupation: Implications for Production Efficiency By Geir Haakon Bjertnæs
  6. Income Taxes, Property Values and Migration By Amihai Glazer; Vesa Kanniainen; Panu Poutvaara

  1. By: Knud Jørgen Munk (Department of Economics, University of Aarhus, Denmark)
    Abstract: As is broadly recognized, the straightforward application of the Diamond-Mirrlees (1971) production efficiency theorem implies that when lump-sum taxation is not available, then it is optimal for the government in a small open economy to rely on taxes on the net demand of households rather than on border taxes to finance its resource requirements. However, the theorem does not hold when taxation is associated with administrative costs. The present paper explores the implications for optimal taxation and for desirable directions of tax-tariff reform in countries at different levels of economic development taking into account the costs of tax administration. The paper lends support to and clarifies the reasons for the criticism by Emran and Stiglitz (2003, 2005) of the IMF and the World Bank's recommendation to developing countries to adopt VAT to replace border taxes.
    Keywords: Optimal taxation, optimal trade policy, VAT, tax-tariff reform, costs of tax administration, informal sector, developing countries
    JEL: F11 F13 H21
    Date: 2005–12–15
  2. By: Manel Antelo (Universidad de Santiago de Compostela)
    Abstract: This paper examines the effect of signaling on environmental taxation when each polluter privately knows whether its production cost is low or high, whereas third parties (i.e. the rival firms and the regulator) have only a subjective perception on such a cost. Consequently, there is both horizontal and vertical asymmetric information, and each polluting firm can strategically manipulate both the competitor and the policymaker's prior cost perceptions. We show that if the policymaker's ecological conscience is sufficiently high, polluters wish to be perceived as low-cost firms and, to this end, they will produce a high output level and they will emit a high emissions level. Therefore, optimal pollution taxes are higher than would be the case if firms' costs were not signaled in such a manner as to force low-cost polluters, in an attempt to distinguish themselves from high-cost polluters (by increasing their output level and their emissions level), to reduce the distortions in their production and also in their emissions levels. By contrast, if the policymaker values environmental quality less than consumption, environmental taxes become negative (a subsidy per unit of pollutant emitted), but each polluting firm continues to attempt to convince the other players (the rival firm and the regulator) that it is a low-cost supplier. In this case, if the quantity produced by each polluter signals its costs, over-subsiding holds as compared to the benchmark case of non-signaling.
    Keywords: Polluting firms, horizontal and vertical asymmetric information, signaling and non-signaling, environmental taxes
    JEL: D82 L13 Q28
    Date: 2005
  3. By: Jack Mintz; Alfons Weichenrieder
    Abstract: The paper analyzes the financial structure of outbound FDI during the period 1996-2002 by drawing on up to 54,022 firm-year observations of 13,758 German-owned subsidiaries. We find that the tax rate in the host country has a sizeable and significantly positive effect on leverage for wholly-owned foreign unlike partially-owned foreign companies. Most of the effect comes from increased intra-company borrowing, while third-party debt is not significantly affected by tax differences. While wholly-owned subsidiaries react more sensitively to tax rate differentials, they are less sensitive to macroeconomic influences like interest rates.
    Keywords: foreign direct investment, financial structure, capital structure, taxation
    JEL: F23 H25
    Date: 2005
  4. By: Vesa Kanniainen; Seppo Kari; Jouko Ylä-Liedenpohja
    Abstract: The paper shows how entrepreneurial taxes interact with the career choice of individuals, the quality of entrepreneurs, and their effort and investments. It is particularly relevant to differentiate the early effects on start-up enterprises with substantial uncertainty from the tax effects on mature firms where the uncertainty is resolved. That is why the neutrality results of dividend taxation from mature company theory do not carry over to start-up enterprises. The Nordic dual model encourages (discourages) the establishment of new enterprises by entrepreneurs who anticipate high (low) profitability.
    Keywords: dual income taxation, enterprise taxes
    JEL: H25
    Date: 2005
  5. By: Geir Haakon Bjertnæs
    Abstract: The desirability for production efficiency is re-examined in this study, where agents choose occupation based on lifetime income net of tuition costs. Efficient revenue raising implies that the government should trade off efficiency in production for efficiency in intertemporal consumption, as capital income is taxed in optimum. The subsequent wage difference between high- and low-skilled occupations is increased compared to a production efficient outcome, which is in contrast to previous results in the literature.
    Keywords: optimal income taxation, subsidies for tuition, skill formation, production efficiency
    JEL: H21 H24
    Date: 2005
  6. By: Amihai Glazer (University of California, Irvine); Vesa Kanniainen (University of Helsinki); Panu Poutvaara (University of Helsinki and IZA Bonn)
    Abstract: We consider taxation by a utilitarian government in the presence of heterogeneous locations within a country. We show that a utilitarian government never equalizes after-tax incomes, even when it can impose group-specific lump-sum taxes. If migration is impossible, a utilitarian government may even transfer income from the poor to the rich, reducing the rents earned by absentee landlords. The redistributive tax on the rich may be higher or lower when the rich can migrate than when they cannot.
    Keywords: taxes, land rents, property values, migration, redistribution
    JEL: H21 H7 R21 R23
    Date: 2005–12

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