nep-pub New Economics Papers
on Public Finance
Issue of 2006‒10‒14
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The life cycle of the firm with debt and capital income taxes By Brys,Bert; Bovenberg,A. Lans
  2. Taxation, entrepreneurship, and wealth By Marco Cagetti; Mariacristina De Nardi
  3. Federal Tax Policy Towards Energy By Gilbert E. Metcalf
  4. Smoking: taxing health and Social Security By Brian S. Armour; M. Melinda Pitts
  5. Private Provision of Public Goods and Local Interaction By Luca Corazzini, Ugo Gianazza
  6. Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand? By Nicodeme, Gaetan
  7. The Effect of Spillovers on the Provision of Local Public Goods By Bloch, Francis; Zenginobuz, Unal

  1. By: Brys,Bert; Bovenberg,A. Lans (Tilburg University, Center for Economic Research)
    Abstract: This paper analyses the impact of capital income taxes on financial and investment decisions of corporations. Extending Sinn's (1991) nucleus theory of the firm with debt finance, the model determines the optimal sources of finance (debt, newly issued equity or retained earnings), the optimal use of the investment's earnings (dividends, retentions, interest payments or debt redemption), and the optimal capital accumulation throughout the life cycle of the firm.
    Keywords: tax burden;capital income taxation;firm behaviour
    JEL: H32 G32 D21
    Date: 2006
  2. By: Marco Cagetti; Mariacristina De Nardi
    Abstract: Entrepreneurship is a key determinant of investment, saving, and wealth inequality. We study the aggregate and distributional effects of several tax reforms in a model that recognizes this key role and that matches the large wealth inequality observed in the U.S. data. The aggregate effects of tax reforms can be particularly large when they affect small and medium-sized businesses, which face the most severe financial constraints, rather than big businesses. The consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system insulates smaller businesses from the negative effects of estate taxation, minimizing the aggregate costs of redistribution. Abolishing the current estate tax would generate a modest increase in wealth inequality and slightly reduce aggregate output. Decreasing the progressivity of the income tax generates large increases in output, at the cost of large increases in wealth concentration.
    Date: 2006
  3. By: Gilbert E. Metcalf
    Abstract: On Aug. 8, 2005, President Bush signed the Energy Policy Act of 2005 (PL 109-58). This was the first major piece of energy legislation enacted since 1992 following five years of Congressional efforts to pass energy legislation. Among other things, the law contains tax incentives worth over $14 billion between 2005 and 2015. These incentives represent both pre-existing initiatives that the law extends as well as new initiatives. In this paper I survey federal tax energy policy focusing both on programs that affect energy supply and demand. I briefly discuss the distributional and incentive impacts of many of these incentives. In particular, I make a rough calculation of the impact of tax incentives for domestic oil production on world oil supply and prices and find that the incentives for domestic production have negligible impact on world supply or prices despite the United States being the third largest oil producing country in the world. Finally, I present results from a model of electricity pricing to assess the impact of the federal tax incentives directed at electricity generation. I find that nuclear power and renewable electricity sources benefit substantially from accelerated depreciation and that the production and investment tax credits make clean coal technologies cost competitive with pulverized coal and wind and biomass cost competitive with natural gas.
    JEL: H20 Q48
    Date: 2006–10
  4. By: Brian S. Armour; M. Melinda Pitts
    Abstract: While the health risks associated with smoking are well known, the impact on income distributions is not. This paper extends the literature by examining the distributional effects of a behavioral choice, in this case smoking, on net marginal Social Security tax rates (NMSSTR). The results show that smokers, as a result of shorter life expectancies, incur a higher NMSSTR than nonsmokers. In addition, as low-earnings workers have a higher smoking prevalence than high-earnings workers, smoking works to widen the income distribution. This higher tax rate could have implications for both labor supply behavior and Social Security system funding.
    Date: 2006
  5. By: Luca Corazzini, Ugo Gianazza (ISLA, Universita' Bocconi, Milano)
    Abstract: The main results of the traditional theory of private provision of public goods under the assumptions of identical individuals and normality of both public good and private consumption are: 1) there exists a unique Nash equilibrium pattern of contributions in which everybody contributes the same amount; 2) this pattern is stable. Under homothetic preferences, we show that these results generally no longer hold in the context of “locally enjoyed” public goods. In particular, there always exists a set of values for the parameter which describes preferences for the public good such that the symmetric Nash equilibrium is unstable and there exists at least one asymmetric Nash equilibrium which is locally stable.
    Keywords: Local Interaction, Public Goods, Nash Equilibria.
    JEL: C62 C72 H41
    Date: 2006–08
  6. By: Nicodeme, Gaetan
    Abstract: This paper reviews the rationales and facts about corporate tax coordination in Europe. Although statutory tax rates have dramatically declined, revenues collected from corporate taxation are fairly stable and there is so far no evidence of a race-to-the-bottom. The ambiguous results from economic tax theory and the institutional setting have constrained strong EU policy action in the area of tax competition. Yet, there are welfare gains to be expected from tax coordination. Following its 2001 Communication, the European Commission is currently working with Member States on the definition of a common consolidated corporate tax base for European Companies.
    Keywords: European Union; corporate taxation; tax competition; tax coordination.
    JEL: H73 H25 H87
    Date: 2006–06
  7. By: Bloch, Francis; Zenginobuz, Unal
    Abstract: This paper analyzes the provision of local public goods with positive spillovers across jurisdictions. If spillovers are symmetric, the noncooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdictions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that jurisdiction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.
    Keywords: local public goods; positive spillovers; equilibrium
    JEL: H41 H77 H73
    Date: 2004–12–15

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