nep-pub New Economics Papers
on Public Finance
Issue of 2006‒04‒08
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Globalisation and the Mix of Wage and Profit Taxes By Andreas Haufler; Alexander Klemm; Guttorm Schjelderup
  2. Optimal Taxation and Social Insurance in a Lifetime Perspective By Lans Bovenberg; Peter Birch Sørensen
  3. Business Cycle Dynamics of a New Keynesian Overlapping Generations Model with Progressive Income Taxation By Burkhard Heer; Alfred Maussner
  4. Social Security and Retirement Decision: A Positive and Normative Approach By Cremer, Helmuth; Lozachmeur, Jean-Marie; Pestieau, Pierre
  5. Indirect Taxation and Progressivity: Revenue and Welfare Changes By John Creedy; Catherine Sleeman

  1. By: Andreas Haufler; Alexander Klemm; Guttorm Schjelderup
    Abstract: This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax, either when preferences for public goods increase or when a rising share of capital is employed in multinational firms. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2001. The results of the empirical analysis support our central hypotheses.
    Keywords: capital and labour taxes, economic integration, multinational firms
    JEL: F15 F23 H20 H73
    Date: 2006
  2. By: Lans Bovenberg; Peter Birch Sørensen
    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
    Date: 2006
  3. By: Burkhard Heer; Alfred Maussner
    Abstract: In our dynamic optimizing sticky price model, agents are heterogeneous with regard to their age and their productivity. We find that the business cycle dynamics in the OLG model in response to both a technology shock and a monetary shock are similar, but not completely identical to those found in the corresponding representative-agent model. In particular, working hours in the OLG model decrease in response to a positive technological shock, since for young workers the income effect dominates the substitution effect. This is in line with the adverse effect of productivity shocks on employment found in structural vector autoregressions.
    Keywords: fluctuations, unanticipated inflation, wealth distribution, income distribution, progressive income taxation, Calvo price staggering
    JEL: D31 D58 E31 E32 E52
    Date: 2006
  4. By: Cremer, Helmuth; Lozachmeur, Jean-Marie; Pestieau, Pierre
    Abstract: Social insurance for the elderly is judged responsible for the widely observed trend towards early retirement. In a world of laissez-faire or in a first-best setting, there would be no such trend. However, when first-best instruments are not available, because health and productivity are not observable, the optimal social insurance policy may imply a distortion on the retirement decision. The main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries, a complete elimination of this bias (i.e., a switch to an actuarially fair system) is not the right answer. This is so and for two reasons. First, some distortions are second-best optimal. This is the normative argument. Second, and on the positive side, the elimination of the bias might be problematic from a political perspective. Depending on the political process, it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself.
    Keywords: early retirement; majority voting; optimal income taxation; social security
    JEL: H21 H55 J26
    Date: 2006–03
  5. By: John Creedy; Catherine Sleeman
    Abstract: This paper compares the disproportional effects of indirect taxation using two alternative measures, tax-progressivity and welfare-progressivity. In the context of an indirect tax imposed on a single good, tax-progressivity requires the taxed good to be luxury. In contrast, welfare-progressivity requires the equivalent variation as fraction of total expenditure to rise with total expenditure. Sufficient conditions for welfare-progressivity are derived for both the Linear Expenditure System (LES) and the Almost Ideal Demand System (AIDS). When the parameters of the direct utility functions are held constant, imposing homogeneous preferences, the condition required for welfare-progressivity is the same as that required for tax-progressivity, namely that the taxed good is a luxury. Parameter constancy also implies a particular pattern for the variation in budget shares with total expenditure, which is unique for each demand system. When parameters are allowed to vary with total expenditure, according to a general budget share relationship, which enables preference heterogeneity amongst households, welfare-progressivity is independent of tax-progressivity for both models, giving rise to possible conflicts in tax and welfare disproportionality. The empirical application of these conditions to New Zealand data shows that many such cases of conflict can arise. Furthermore, conflicting results are also obtained when examining the effects of the overall indirect tax structure. The majority of conflicts arise where tax-regressivity exists at the same time as welfareprogressivity.
    Keywords: Tax progressivity; equivalent variations; budget shares
    JEL: H23 H22 H31
    Date: 2005

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