nep-pub New Economics Papers
on Public Finance
Issue of 2006‒06‒10
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The effects of the marginal tax rate in a matching model with endogenous labor supply By Alexis, PARMENTIER
  2. Optimal Taxation of Intermediate Goods in the Presence of Externalities: A Survey Towards the Transport Sector By Ahlberg, Joakim
  3. Progressive Taxation and Wage Setting when Unions Strategically Interact By Giorgio Brunello; Daniela Sonedda
  4. Taxation, Dividend Payments and Ex-Day Price Changes By Daunfeldt, Sven-Olov; Selander, Carina; Wikström, Magnus
  5. Capital Levies and Transition to a Consumption Tax By Louis Kaplow
  6. $2.00 Gas! Studying the Effects of a Gas Tax Moratorium By Joseph J. Doyle, Jr.; Krislert Samphantharak
  7. Relaxing Tax Competition through Public Good Differentation By Zissimos, Ben; Wooders, Myrna

  1. By: Alexis, PARMENTIER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: This paper analyzes the effects of the marginal tax rate on unemployment and economic efficiency in a matching model with homogenous agents when wages and working hours are bargained over. I show that the theoretical impact of a higher marginal tax rate on unemployment is ambiguous whatever the instantaneous utility in unemployment i.e. for an utility in unemployment that is either fixed or perfectly indexed on net wages. These results are in sharp contrast with the literature. Numerical simulations applied to France suggest that a higher marginal tax rate generally reduces the unemployment rate but at the expense of lower economic efficiency. The simulations point also out that the relation between the optimal marginal tax rate and the elasticity of labor supply is not monotonic.
    Keywords: Matching model; Marginal Tax Rate; Labor supply; Utility in unemployment
    JEL: D82 H21 H24 J64
    Date: 2006–04–01
  2. By: Ahlberg, Joakim (VTI)
    Abstract: The paper surveys the literature on optimal taxation with emphasis on intermediate goods, or, more specific, freight (road) transport. There are two models frequently used, first, the one emanated from Diamond & Mirrlees' (1971) paper, where the production efficiency lemma made it clear that intermediate goods was not to be taxed. And, second, the Ramsey-Boiteux model where a cost-of-service regulation imposes a budget constraint for the regulated firm. In the latter model, in contrast to the first, freight transports (intermediate goods) are to be taxed in the Ramsey tradition, and thus trades the production efficiency lemma against a budget restriction. The paper also discusses welfare effects due to environmental tax reforms, with emphasis to what has become to known as the double dividend hypothesis. Finally, administrative costs in the context of optimal taxation is touched upon, a subject that is to a large degree repressed in optimal tax theory.
    Keywords: Optimal Taxation; Intermediate Goods; Transport; Welfare Effects; Environmental Tax; Administrative Costs
    JEL: H21 H23
    Date: 2006–06–01
  3. By: Giorgio Brunello (University of Padua); Daniela Sonedda (Universita' del Piemonte Orientale)
    Abstract: In a multisector economy with unionized labor markets, the interdependence of union wage claims - typical of industrial bargaining - affects the relationship between tax progressivity and wage pressure, which varies in a nonlinear fashion with the nature of the wage bargain, and can be hump-shaped. Our empirical analysis of 20 OECD countries for the period 1997-2004 shows that higher tax progressivity increases pre-tax wages (and unemployment) in countries characterized by industry level wage bargaining, and reduces them in countries with local or fully centralized bargaining.
    JEL: H24
    Date: 2006–05
  4. By: Daunfeldt, Sven-Olov (Högskolan i Gävle); Selander, Carina (Department of Economics, Umeå University); Wikström, Magnus (Department of Economics, Umeå University)
    Abstract: The purpose of the paper is to study the effects of taxation on dividend payments and ex-dividend price changes in Sweden during 1991-1995. Under this period, dividends and capital gains were taxed at a flat rate. Tax changes in Sweden during the 1990s thus provide an opportunity to include direct measures of the tax treatment of dividends and capital gains in the empirical analysis, in contrast to previous studies. The results indicate that tax reforms have large effects on dividend payments, while the effects on ex-dividend price changes are less conclusive.
    Keywords: capital gain; censoring; dividend; flat tax; tax reform
    JEL: G12 G35 H24
    Date: 2006–06–02
  5. By: Louis Kaplow
    Abstract: The merits of capital levies depend on the likelihood of repetition, the extent of anticipation, and its effects on distribution. The relevance of these features, which in varying degrees is underdeveloped or underappreciated in pertinent literatures, is elaborated and then considered with regard to the problem of transition to a consumption tax. Other transition issues are distinguished, and specific attention is devoted to rate changes under a consumption tax and whether owners of preexisting capital are effectively compensated through higher net-of-tax returns due to repeal of the income tax. The analysis is also related to literature that examines dynamic models of taxation, particularly work simulating consumption tax transitions and assessing the optimality of capital taxation in the long run.
    JEL: H21 H23 H24 H25 K34
    Date: 2006–05
  6. By: Joseph J. Doyle, Jr.; Krislert Samphantharak
    Abstract: There are surprisingly few estimates of the effect of sales taxes on retail prices, especially at the firm level. Further, along both sides of a state border, a change in one state’s sales tax can shed light on the nature of competition, as a subset of firms effectively experiences a change in its marginal cost. This paper considers the suspension, and subsequent reinstatement, of the 5% gasoline sales tax in Illinois and Indiana following a temporary price spike in the spring of 2000. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily, gas station-level data, retail gas prices are found to drop by 3% following the suspension, and increase by 4% following the reinstatements. After linking the stations to driving distance data, some evidence suggests that the tax increases are associated with higher prices up to an hour’s drive into neighboring states.
    JEL: H2
    Date: 2006–05
  7. By: Zissimos, Ben (Dept of Economics, Vanderbilt University); Wooders, Myrna (Dept of Economics, Vanderbilt University)
    Abstract: This paper argues that, because governments are able to relax tax competition through public good differentiation, traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated. The key assumption is that firms vary in the extent to which public good provision reduces costs. We show that Leviathan governments are able to use this fact to relax the forces of tax competition, reducing efficiency. When firms can ‘vote with their feet’ tax competition leads firms to locate in ‘too many’ jurisdictions. A ‘minimum tax’ further relaxes tax competition, further reducing efficiency.
    Keywords: asymmetric equilibrium ; core-periphery ; non-renegotiable minimum tax ; tax competition ; tax harmonization
    JEL: C72 H21 H42 H73 R50
    Date: 2003

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