nep-pub New Economics Papers
on Public Finance
Issue of 2006‒03‒18
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Assessing the Impact of Tax/Transfer Policy Changes on Poverty: Methodological Issues and Some European Evidence By Callan T; Walsh J
  2. Optimal Taxation and Social Insurance in a Lifetime Perspective By A. Lans Bovenberg; Peter Birch Sørensen
  3. Evaluating state tax revenue variability: a portfolio approach By Thomas A. Garrett
  4. Tax smoothing with redistribution By Iván Werning
  5. Monopoly, Inequality and Redistribution via the Public Provision of Private Goods By Thomas Moutos; Margarita Katsimi

  1. By: Callan T; Walsh J
    Abstract: A method of systematically assessing the 'first-round' impact of tax and transfer policy changes on the income distribution and the incidence of relative income poverty is proposed. It involves the construction of a 'distributionally neutral' policy, which can be approximated by a policy which indexes tax allowances, credits and bands and welfare payment rates in line with a broad measure of income growth. The impact of actual policy changes in five EU countries over the 1998 to 2001 period is then measured against this benchmark, using the EUROMOD tax-benefit model.
    Keywords: Distributive impact, relative income poverty, microsimulation
    JEL: H23 H53 I32
    Date: 2449–03
  2. By: A. Lans Bovenberg (Tilburg University); Peter Birch Sørensen (Department of Economics, University of Copenhagen)
    Abstract: Advances in information technology have improved the administrative feasibility of redistribution based on lifetime earnings recorded at the time of retirement. We study optimal lifetime income taxation and social insurance in an economy in which redistributive taxation and social insurance serve to insure (ex ante) against skill heterogeneity as well as disability risk. Optimal disability benefits rise with previous earnings so that public transfers depend not only on current earnings but also on earnings in the past. Hence, lifetime taxation rather than annual taxation is optimal. The optimal tax-transfer system does not provide full disability insurance. By offering imperfect insurance and structuring disability benefits so as to enable workers to insure against disability by working harder, social insurance is designed to offset the distortionary impact of the redistributive labor income tax on labor supply.
    Keywords: optimal lifetime income taxation; optimal social insurance
    JEL: H21 H55
  3. By: Thomas A. Garrett
    Abstract: State revenue variability is evaluated using a volatility model rooted in portfolio theory. The model evaluates how closely a state's revenue portfolio is constructed to minimize variability in total state tax revenue. The model complements parametric methods of revenue variability.
    Keywords: Taxation ; Revenue
    Date: 2006
  4. By: Iván Werning
    Abstract: We study optimal labor and capital taxation in a dynamic economy subject to government expenditure and aggregate productivity shocks. We relax two assumptions from Ramsey models: that a representative agent exists and that taxation is proportional with no lump-sum tax. In contrast, we capture a redistributive motive for distortive taxation by allowing privately observed differences in relative skills across workers. We consider two scenarios for tax instruments: (i) taxation is linear with arbitrary intercept and slope; and (ii) taxation is non-linear and unrestricted as in Mirrleesian models. Our main result provides conditions for perfect tax smoothing: marginal taxes on labor income should remain constant over time and invariant to shocks. In addition, capital should not be taxed. We also discuss implications for optimal debt management. Finally, an extension highlights movements in the distribution of relative skills as a potential source for variations in optimal marginal tax rates.
    Date: 2005
  5. By: Thomas Moutos (AUEB and CESifo); Margarita Katsimi (AUEB and CESifo)
    Abstract: The relationship between inequality and redistribution is usually studied under the assumption that the government collects different amounts of taxes from each citizen (voter) but gives back the same amount (in cash or in kind) to everyone. In this paper we consider what happens if the government can redistribute through both sides of its budget (revenue and expenditure). We study the effects of inequality on the size (and structure) of redistributive programs in both perfectly competitive and monopolistic settings. We find that the presence of monopoly results in a higher tax rate than in the competitive case and that in the latter case an increase in inequality can be associated with a fall in the tax rate. We find also that although the median voter may not vote for a positive tax rate in the presence of public sector inefficiency under perfect competition, she may prefer – ceteris paribus – a positive tax rate in the presence of monopoly.
    Keywords: Monopoly, Redistribution, Inequality, Public Goods, Median Voter
    JEL: H23 H42 P16
    Date: 2006

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