New Economics Papers
on Public Finance
Issue of 2006‒10‒07
nine papers chosen by

  1. Pigou's Dividend versus Ramsey's Dividend in the Double Dividend Literature By Eduardo L. Giménez Fernández; Miguel Rodríguez Méndez
  2. Is there a Social Security Tax Wedge? By Alessandro Cigno
  3. Corporate and Personal Income Tax Declarations By Laszlo Goerke
  4. Can Capital Income Taxes Survive? And Should They? By Peter Birch Sørensen
  5. The Equity Trap, the Cost of Capital and the Firm’s Growth Path By Tobias Lindhe; Jan Södersten
  6. FLAT TAX REFORMS IN THE U.S.: A BOON FOR THE INCOME POOR By Javier Díaz-Giménez; Josep Pijoan-Mas
  7. Optimum Commodity Taxation in Pooling Equilibria By Eytan Sheshinski
  8. Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-Qualified Labour More Heavily Than Qualified Labour By Wolfram F. Richter
  9. Preferential tax regimes with asymmetric countries By Bucovetsky, Sam; Haufler, Andreas

  1. By: Eduardo L. Giménez Fernández (Universidad de Vigo); Miguel Rodríguez Méndez (Universidad de Vigo)
    Abstract: The aims of this paper are to highlight misinterpretations of policy assessments in the double dividend literature, to specify which of the efficiency costs and benefits should be ascribed to each dividend, and then, to propose a definition for the first dividend and the second dividend. We found the Pigou's dividend more appropiate for policy guidance than the usual Ramsey's dividend. Finally, the paper analyzes a green tax reform for the US economy to illustrate the advantages of the new definitions proposed in this paper: i) overcome some shortcoming of the mainstream current definitions in the literature regarding overestimation of the efficiency costs; and, ii) provide information by themselves and not as a partial view of the whole picture.
    Keywords: Double dividend, Green Tax Reforms, Ramsey's dividend, Pigou's dividend
    JEL: H23 Q58
    Date: 2006
  2. By: Alessandro Cigno
    Abstract: A Beveridgean pension scheme invariably reduces the marginal return to labour, and will thus discourage labour. A Bismarckian scheme can do so only if it is not actuarially fair, or in the presence of credit rationing. In any case, the same pension contribution will discourage labour less if the scheme is Bismarckian than if it is Beveridgean. A Bismarckian scheme may even encourage labour.
    Keywords: tax wedge, labour, public pensions, Bismarck, Beveridge, implicit pension tax
    JEL: H31 H55 J38
    Date: 2006
  3. By: Laszlo Goerke
    Abstract: Decisions by firms and individuals on the extent of their tax payments have generally been treated as separate choices. Empirically, a positive relationship between corporate and personal income tax evasion can be observed. The theoretical analysis in this paper shows that a manager's decision on the firm's behaviour will be independent of his personal preferences if the gain from reducing corporate tax payments is certain, as in the case of tax avoidance. If, however, the firm evades taxes so that the manager's income depends on whether the firm's activities are detected or not, corporate and personal income tax evasion choices cannot be separated.
    Keywords: firms, individuals, tax evasion, uncertainty
    JEL: H24 H25 H26
    Date: 2006
  4. By: Peter Birch Sørensen
    Abstract: The paper surveys some main results in the theory of capital income taxation in the open economy; reviews recent trends in international taxation, and discusses alternative blueprints for fundamental capital income tax reform from the perspective of an open economy faced with growing mobility of capital income tax bases.
    JEL: H21 H25
    Date: 2006
  5. By: Tobias Lindhe; Jan Södersten
    Abstract: This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the size of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae.
    Keywords: dividend taxation, equity trap, cost of capital, nucleus theory, growth path
    JEL: H24 H25 H32
    Date: 2006
  6. By: Javier Díaz-Giménez; Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this article we queantify the aggregate, distributional and welfare consequences of two revenue neutral flat-tax reforms using a model economy that replicates the U.S. distributions of earnings, income and wealth in very much detail. We find that the less progressive reform brings about a 2.4 percent increase in steady-state output and a more unequal distribution of after-tax income. In contrast, the more progressive reform brings about a -2.6 percent reduction is steady-state output and a distribution of aftertax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17 percent of consumption, and in the more progessive flat-tax economy it increases by 0.45 percent of consumption. In both flat-tax refoms the income poor pay less income taxes and obtain sizeable welfare gains.
    Keywords: Flat-tax reforms, efficiency, inequality, earnings distribution, income distributions, wealth distribution.
    JEL: D31 E62 H23
    Date: 2006–07
  7. By: Eytan Sheshinski
    Abstract: This paper extends the standard model of optimum commodity taxation (Ramsey (1927) and Diamond-Mirrlees (1971)) to a competitive economy in which some markets are inefficient due to asymmetric information. As in most insurance markets, consumers impose varying costs on suppliers but …firms cannot associate costs to customers and consequently all are charged equal prices. In a competitive pooling equilibrium, the price of each good is equal to average marginal costs weighted by equilibrium quantities. We derive modi…ed Ramsey-Boiteux Conditions for optimum taxes in such an economy and show that they include general-equilibrium effects which re‡flect the initial deviations of producer prices from marginal costs, and the response of equilibrium prices to the taxes levied. It is shown that condition on the monotonicity of demand elasticities enables to sign the deviations from the standard formula. The general analysis is applied to the optimum taxation of annuities and life insurance.
    Keywords: Asymmetric Information; Pooling Equilibrium; Ramsey-Boiteux Conditions; Annuities
    JEL: D43 H21
    Date: 2006–08
  8. By: Wolfram F. Richter (University of Dortmund and IZA Bonn)
    Abstract: Assuming decreasing returns to education and the endogenous supply of qualified and nonqualified labour it is shown to be efficient to supplement a consumption tax with positive incentives for education. If the return from education is isoelastic and if the choice is between (i) subsidizing the monetary cost of education and (ii) taxing non-qualified labour income more heavily than qualified labour income while keeping the effective cost of education constant, the latter policy is shown to be second-best efficient. In particular, any tax distortions should be constrained to labour choices while the choice of education should remain undistorted. The result holds for arbitrary utility functions.
    Keywords: endogenous choice of labour and education, efficient taxation, human capital investment, double dividend hypothesis
    JEL: H2 I2 J24
    Date: 2006–09
  9. By: Bucovetsky, Sam; Haufler, Andreas
    Abstract: Current policy initiatives taken by the EU and the OECD aim at abolishing preferential corporate tax regimes. This note extends Keen's (2001) analysis of symmetric capital tax competition under preferential (or discriminatory) and non-discriminatory tax regimes to allow for countries of different size. Even though size asymmetries imply a redistribution of tax revenue from the larger to the smaller country, a non-discrimination policy is found to have similar effects as in the symmetric model: it lowers the average rate of capital taxation and thus makes tax competition more aggressive in both the large and the small country.
    Keywords: corporate taxation; preferential tax regimes
    JEL: H H
    Date: 2006–10

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