nep-pub New Economics Papers
on Public Finance
Issue of 2006‒10‒21
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The optimal tax treatment of housing capital in the neoclassical growth model By Eerola , Essi; Määttänen , Niku
  2. Tax Incentives and Household Portfolios: A Panel Data Analysis By Sule Alan; Søren Leth-Petersen
  3. Federal Tax Policy Towards Energy By Gilbert E. Metcalf
  4. Collectively Incentive Compatible Tax Systems By Felix Bierbrauer
  5. Distortionary Taxation and the Free-Rider Problem By Felix Bierbrauer

  1. By: Eerola , Essi (RUESG, University of Helsinki); Määttänen , Niku (The Research Institute of the Finnish Economy and CEBR)
    Abstract: In a dynamic setting, housing is both an asset and a consumption good. But should it be taxed like other forms of consumption or like other forms of saving? We consider the optimal taxation of the imputed rent from owner housing within a version of the neoclassical growth model. We find that the optimal tax rate on the imputed rent is quite sensitive to the constraints imposed on the other available tax rates. In general, it is not optimal to tax the imputed rent at the same rate as the business capital income.
    Keywords: housing; capital taxation; optimal taxation
    JEL: E21 H21
    Date: 2005–07–11
  2. By: Sule Alan (Department of Economics, York University); Søren Leth-Petersen (Akf - Institute of Local Government Studies, Denmark)
    Abstract: This paper investigates the responsiveness of household portfolios to tax incentives by exploiting a substantial tax reform that altered after-tax returns and cost of debt for a large number of households. An extraordinary panel data set that covers two years before and after the reform is used for the analysis. Our empirical findings suggest that households reshuffle their balance sheets in the case of a partial deductibility phase-out. In particular, heavily taxed,interest-bearing assets are used to pay off mortgage debt. Furthermore, we find that taxes have a significant impact on the structure of household portfolios even after controlling for unobserved heterogeneity.
    Keywords: household portfolios; taxation; panel data; natural experiment
    JEL: G11 H31
    Date: 2006–10
  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
  4. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This paper assumes that individuals possess private information both about their abilities and about their valuation of a public good. Individuals can undertake collective actions on order to manipulate the tax system and the decision on public good provision. Consequently, an implementable scheme of taxation has to be collectively incentive compatible. If preferences are additively separable, then an implementable tax systems has the following properties: (i) tax payments do not depend on public goods preferences and (ii) there is no scope for a collective manipulation of public goods preferences. For a quasilinear economy, the optimal tax system is explicitly characterized.
    Keywords: Optimal Taxation, Public Good Provision, Revelation of Preferences, Information Aggregation
    JEL: D71 D82 H21 H41
    Date: 2006–09
  5. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This paper derives a version of the Samuelson rule, which takes not only the marginal costs of public funds into account but also the desirability of preference revelation. Under a linear income tax more able individuals suffer from a larger utility loss if taxes are raised to cover the cost of public good provision. This implies that these individuals are tempted to understate their valuation of the public good. Likewise, less productive individuals are inclined to exaggerate their valuation. These incentive concerns require the use of excessive taxes. They ensure a truthful revelation of preferences for the public good. Under an optimal utilitarian tax constitution, individuals are not granted influence on public good provision if the taxes needed to induce informative behavior are prohibitively high.
    Keywords: Public Good Provision, Revelation of Preferences, Distortionary Taxation, Two-dimensional Heterogeneity
    JEL: D71 D82 H21 H41
    Date: 2006–03

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