nep-pub New Economics Papers
on Public Finance
Issue of 2006‒10‒28
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How Progessive is the US Federal Tax System? An Historical and International Perspective By Piketty, Thomas; Saez, Emmanuel
  2. Flat Tax Reforms in the US: A Boon for the Income Poor By Díaz-Giménez, Javier; Pijoan-Mas, Josep
  3. Income Inequality and Progressive Income Taxation in China and India, 1986-2015 By Piketty, Thomas; Qian, Nancy
  4. Is Partial Tax Harmonization Desirable? By Conconi, Paola; Perroni, Carlo; Riezman, Raymond
  5. Exports, Foreign Direct Investment and the Costs of Coporate Taxation By Keuschnigg, Christian
  6. Second-best tax policy in a growing economy with externalities. By Steve Cassou; Arantza Gorostiaga; María José Gutiérrez; Stephen Hamilton

  1. By: Piketty, Thomas; Saez, Emmanuel
    Abstract: This paper provides estimates of federal tax rates by income groups in the United States since 1960, with special emphasis on very top income groups. We include individual and corporate income taxes, payroll taxes, and estate and gift taxes. The progressivity of the U.S. federal tax system at the top of the income distribution has declined dramatically since the 1960s. This dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labour income. The sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity. International comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity, both for time trends and for cross-country comparisons. The pattern for the United Kingdom is similar to the US pattern. France had less progressive taxes than the US or UK in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the US or the UK.
    Keywords: income tax progressivity
    JEL: H2
    Date: 2006–07
  2. By: Díaz-Giménez, Javier; Pijoan-Mas, Josep
    Abstract: In this article we quantify 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% 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% reduction in steady state output and a distribution of after-tax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17% of consumption, and in the more progressive flat-tax economy it increases by 0.45% of consumption. In both flat-tax reforms the income poor pay less income taxes and obtain sizeable welfare gains.
    Keywords: earnings distribution; efficiency; flat-tax reforms; income distribution; inequality; wealth distribution
    JEL: D31 E62 H23
    Date: 2006–09
  3. By: Piketty, Thomas; Qian, Nancy
    Abstract: This paper evaluates the prospects for income tax reform in China during the coming decade (with a comparison to India), and argues that such reforms should rank high on the policy agenda in these two countries. Due to high average income growth and sharply rising top income shares during the 1990s and early 2000s, progressive income taxation is about to raise non-trivial tax revenues in China and India and to become an important political object. According to our projections, the income tax should raise at least 4% of Chinese GDP in 2010 (versus less than 1% in 2000 and 0,1% in 1990), in spite of the 20% nominal rise in the exemption threshold that took effect in 2004. The fact that progressive income taxation is becoming an important policy tool has important consequences for China’s ability to finance social spending and to keep under control the rise in income inequality associated to globalization and growth. Due to faster income growth and to a higher fraction of wage earners in the labor force, the prospects for income tax development look better in China than in India. This potential is however limited by the fact that Chinese top wage-earners are under-taxed relatively to top non-wage income earners.
    Keywords: income distribution; income taxation
    JEL: E25
    Date: 2006–05
  4. By: Conconi, Paola; Perroni, Carlo; Riezman, Raymond
    Abstract: We consider a setting in which capital taxation is characterized by two distortions working in opposite directions. On one hand, governments engage in tax competition and are tempted to lower capital tax rates. On the other hand, they are unable to commit to future policies and, once capital has been installed, have incentives to increase taxes. In this setting, there exists a tax that optimally trades off the two distortions. We compare three possible tax harmonization scenarios: no tax harmonization (all countries set taxes unilaterally), global tax harmonization (all countries coordinate their capital taxes), and partial tax harmonization (only a subset of all countries coordinate capital taxes). We show that, if capital is sufficiently mobile, partial tax harmonization benefits all countries compared to both global and no harmonization. Our analysis provides a rationale for the proposed creation of an Enhanced Cooperation Agreement on capital taxes within the European Union.
    Keywords: commitment; partial coordination; tax competition
    JEL: C73 F21 H21
    Date: 2006–07
  5. By: Keuschnigg, Christian
    Abstract: Depending on the definition of the tax base, the statutory corporate tax rate implies rather different measures of effective average and marginal tax rates. This paper develops a model of a monopolistically competitive industry with extensive and intensive business investment and shows how these margins respond to changes in average and marginal corporate tax rates. Intensive investment refers to the size of a firm's capital stock. Extensive investment refers to the firm's production location and reflects the trade-off between exports and foreign direct investment as alternative modes of foreign market access. The paper derives comparative static effects of the corporate tax and shows how the cost of public funds depends on the elasticities of the extensive and intensive investment responses.
    Keywords: corporate taxation; costs of public funds; exports; foreign direct investment
    JEL: D21 F23 H25 L11 L22
    Date: 2006–08
  6. By: Steve Cassou (Kansas State University); Arantza Gorostiaga (Universidad del País Vasco / The University of the Basque Country); María José Gutiérrez (Universidad del País Vasco / The University of the Basque Country); Stephen Hamilton (CAL POLY STATE UNIVERSITY, SAN LUIS OBISPO)
    Abstract: This paper investigates the exploitation of environmental resources in a growing economy within a second-best …scal policy framework. Agents derive utility from two types of consumption goods –one which relies on an environmental input and one which does not –as well as from leisure and from environmental amenity values. Property rights for the environmental resource are potentially incomplete. We connect second best policy to essential components of utility by considering the elasticity of substitution among each of the four utility arguments. The results illustrate potentially important relationships between environmental amentity values and leisure. When amenity values are complementary with leisure, for instance when environmental amenities are used for recreation, taxes on extractive goods generally increase over time. On the other hand, optimal taxes on extractive goods generally decrease over time when leisure and environmental amenity values are substitutes. Unders some parameterizations, complex dynamics leading to nonmonotonic time paths for the state variables can emerge.
    Keywords: Growth and the environment; Elasticity of substitution; Second-best policy
    JEL: H23 O41 Q28
    Date: 2006–10–16

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