nep-pub New Economics Papers
on Public Finance
Issue of 2006‒09‒30
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Comparing Average and Marginal Tax Rates Under the FairTax and the Current System of Federal Taxation By Laurence J. Kotlikoff; David Rapson
  2. Rawlsian Pricing of Access to Public Facilities: A Unidimensional Illustration By DREZE, Jacques; LE BRETON, Michel; WEBER, Shlomo
  3. Real appreciation as an automatic channel for redistribution of increased government non-tax revenue By Erling Holmøy
  4. Property taxation as incentive for cost control:Empirical evidence for utility services in Norway By Lars-Erik Borge; Jørn Rattsø
  5. The Achilles Heel of the Dual Income Tax. The Norwegian Case By Annette Alstadsæter
  6. VAT: Is it Suitable for the Caribbean Community? By Peters, Amos C; Bristol, Marlon A

  1. By: Laurence J. Kotlikoff; David Rapson
    Abstract: Abstract Building on Gokhale, Kotlikoff, and Sluchynsky's (2002) study of Americans' incentives to work full or part time, this paper uses ESPlanner, a life-cycle financial planning program, in conjunction with detailed modeling of transfer programs to determine a) total marginal net tax rates on current labor supply, b) total net marginal tax rates on life-cycle labor supply, c) total net marginal tax rates on saving, and d) the tax-arbitrage opportunities available from contributing to retirement accounts. In seeking to provide the most comprehensive analysis to date of fiscal incentives, the paper incorporates federal and state personal income taxes, the FICA payroll tax, federal and state corporate income taxes, federal and state sales and excise taxes, Social Security benefits, Medicare benefits, Medicaid benefits, Foods Stamps, welfare (TAFCD) benefits, and other transfer program benefits. The paper offers four main takeaways. First, thanks to the incredible complexity of the U.S. fiscal system, it's impossible for anyone to understand her incentive to work, save, or contribute to retirement accounts absent highly advanced computer technology and software. Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving. Third, the system offers very high-income young and middle aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts. Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word -- bizarre.
    JEL: H21 H24
    Date: 2006–09
  2. By: DREZE, Jacques; LE BRETON, Michel; WEBER, Shlomo
    JEL: D70 H20 H73
    Date: 2006–03
  3. By: Erling Holmøy (Statistics Norway)
    Abstract: The paper analyses how equilibrium adjustments of the wage rate affect the scope for tax rate reductions when the government experiences an exogenous increase in non-tax revenues. It shows within a stylized model that increased revenue in the form of a tradable will increase the wage rate, which diminishes the scope for tax rate reduction, provided that the initial wage dependent government net expenditures are positive. In this case the wage rate adjustment represents an automatic channel for redistributing increased non-tax government revenues. When the revenue increases in the form a non-tradable, the wage rate adjustment reinforces the scope for tax rate reduction. Simulations on a CGE model of the Norwegian economy confirm the theoretical results, and demonstrate that the fiscal wage effect can be strikingly large.
    Keywords: Tax incidence; fiscal policy; general equilibrium effects
    JEL: D58 H22 H61
    Date: 2006–09
  4. By: Lars-Erik Borge (Department of Economics, Norwegian University of Science and Technology); Jørn Rattsø (Department of Economics, Norwegian University of Science and Technology)
    Abstract: Recent theoretical research suggests that property taxation has incentive effects that can help control cost problems in the public sector. The institutional setting in Norway allows this first empirical investigation of the incentive effect of property taxation, since we can separate between local governments with and without property tax. The raw data of the variation in the unit cost level for utilities show that local governments with property tax have about 20% lower unit cost. Using both linear regression and propensity score matching, we are not able to wash out the difference in unit costs. Our interpretation is that having a visible and controversial local tax related to property stimulates voter interest in local government activities and thereby may help cost control. The incentive effect is of interest for the design of fiscal federalism.
    Keywords: Property tax; incentive effects; public sector costs; matching
    JEL: H71 H72
    Date: 2006–09–19
  5. By: Annette Alstadsæter (Statistics Norway)
    Abstract: The dual income tax provides the self-employed individual with large incentives to participate in tax minimizing income shifting. The present paper analyses the income shifting incentives under the Norwegian split model in the presence of technology risk, and it concludes that the widely held corporation serves as a tax shelter for high-income self-employed individuals. In addition, real capital investments with a low risk profile are means to shift income from the labor income tax base to the capital income tax base for the high-income self-employed.
    Keywords: Dual income tax; tax avoidance; risky investments; choice of organizational form
    JEL: H24 H25 H32
    Date: 2006–09
  6. By: Peters, Amos C; Bristol, Marlon A
    Abstract: The Caribbean Community is in transition, moving toward a liberalized trade environment with low tariffs. Tax reform is at the forefront of the policy response since traditional sources of tax revenue such as import duties are on the decline. This paper evaluates the suitability of the VAT to countries of the Caribbean Community. We examine theoretical arguments, practical experiences of the Caribbean with the VAT and the economic and tax characteristics of the Caribbean. We conclude by supporting VAT implementation in the Caribbean Community. This paper also reflects a comprehensive survey of tax reform efforts in the Caribbean.
    Keywords: Value Added Tax; Caribbean Community
    JEL: H21 H27 H20 H2
    Date: 2006–09–19

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