nep-pub New Economics Papers
on Public Finance
Issue of 2006‒05‒13
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Family Taxation: An Unfair and Inefficient System By Patricia Apps
  2. The Importance of Habit Formation for Environmental Taxation By Löfgren, Åsa; Nordblom, Katarina
  3. The Impact of Brazil’s Tax-Benefit System on Inequality and Poverty By Herwig Immervoll; Horacio Levy; José Ricardo Nogueira; Cathal O’Donoghue; Rozane Bezerra de Siqueira

  1. By: Patricia Apps (University of Sydney, RSSS - ANU)
    Abstract: This paper presents an analysis of the 2005-06 family tax system comprising the personal income tax, the Medicare Levy, Family Tax Benefits Parts A and B and tax offsets. The results show that most families are now taxed, in effect, on the basis of joint income. Through a succession of reforms the Howard Government has shifted the tax burden to two-earner families to such an extent that many now pay close to the same amount of tax as a family in which only one parent need work to earn the same income while the other works full time at home. This is a defining feature of joint taxation. The study also finds that families face a marginal rate schedule that is no longer progressive but tends to have an inverted U-shaped profile – working families in the middle of the distribution face the highest marginal rates. As a consequence, the incomes of second earners in low and average wage families are taxed effectively at the highest average rates in the economy. The study explains why the system is unfair and seriously damaging for the economy in its effects on female labour supply in an ageing population. On the basis of the results, the paper argues for a return to a progressive individual income tax system, to improve support for families and to raise female participation and productivity.
    Keywords: Income taxation, labour supply, household
    JEL: H24 H31 J22
    Date: 2006
  2. By: Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We analyze how habit formation affects optimal environmental taxation, when consumption of a habitual good causes a negative external effect on the environment. In a simple two-period model, we show that optimal taxation is still Pigouvian, where tax rates equal marginal damage in each period. However, the magnitudes of the tax rates are affected by habit formation. Using simulations we show that since consumption of the habitual good increases over time, so does the optimal tax rate, implying a higher tax rate in period two than in period one. The discrepancy increases in habitual strength. Given the development of the tax rates over time we discuss the welfare loss from imposing a secondbest environmental tax and its relation to habitual strength. Further, we analyze how optimal taxation changes if we relax the assumption of time-consistency. <p>
    Keywords: Optimal taxation; environment; habit formation; secondbest; myopia
    JEL: D62 D91 H21 H23
    Date: 2006–04–27
  3. By: Herwig Immervoll (ISER, University of Essex and IZA Bonn); Horacio Levy (ISER, University of Essex); José Ricardo Nogueira (Universidade Federal de Pernambuco, Recife); Cathal O’Donoghue (National University of Ireland, Galway and IZA Bonn); Rozane Bezerra de Siqueira (Universidade Federal de Pernambuco, Recife)
    Abstract: The Brazilian government raises taxes amounting to 35% of GDP and spends more than two thirds of this on social programmes. These shares are in pair with the OECD averages and well in excess of Latin America averages. However, while tax-benefit systems in most OECD countries reduce income disparities very significantly, the Brazilian government has been much less successful in alleviating inequality and poverty. Focussing on taxes and cash transfers, this paper investigates the impact of the government budget on the income distribution in Brazil, and evaluates its efficiency and effectiveness in reducing inequality and poverty. We present BRAHMS, a new tax-benefit microsimulation model for Brazil and illustrate its use by evaluating the impact of policy on economic inequality. It is argued that microsimulation provides a valuable analytical tool for policy makers in emerging and developing countries in particular.
    Keywords: Brazil, inequality, poverty, redistribution, microsimulation
    JEL: H22 H23 C81
    Date: 2006–05

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