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on Public Finance |
| By: | Kevin Kim; Ricardo Varsano; Michael Keen |
| Abstract: | One of the most striking tax developments in recent years, and one that continues to attract considerable attention, is the adoption by several countries of a form of "flat tax." Discussion of these quite radical reforms has been marked, however, more by assertion and rhetoric than by analysis and evidence. This paper reviews experience with the flat tax, seeking to redress the balance. It stresses that the flat taxes that have been adopted differ fundamentally, and that empirical evidence on their effects is very limited. This precludes simple generalization, but several lessons emerge: there is no sign of Laffer-type behavioral responses generating revenue increases from the tax cut elements of these reforms; their impact on compliance is theoretically ambiguous, but there is evidence for Russia that compliance did improve; the distributional effects of the flat taxes are not unambiguously regressive, and in some cases they may have increased progressivity, including through the impact on compliance; adoption of the flat tax has not resolved common challenges in taxing capital income; and it may have strengthened, not weakened, the automatic stabilizers. Looking forward, the question is not so much whether more countries will adopt a flat tax as whether those that have will move away from it. |
| Keywords: | Flat tax , tax reform , income tax , |
| Date: | 2006–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/218&r=pub |
| By: | Gerhard Glomm (Indiana University Bloomington); Daiji Kawaguchi (Hitotsubashi University); Facundo Sepulveda (Universidad de Santiago de Chile) |
| Abstract: | This paper examines a revenue neutral green tax reform along the lines of the Double Dividend hypothesis. Using a dynamic general equilibrium model calibrated to the US economy, we find that increasing gasoline taxes and using the revenue to reduce capital income taxes does indeed deliver both types of welfare gains: from higher consumption of market goods (an efficiency dividend), and from a better environmental quality (a green dividend), even though in the new steady state environmental quality may worsen. We also find that, given the available evidence on how much households are willing to pay for improvements in air quality, the size of the green dividend is very small in absolute magnitude, and much smaller than the efficiency dividend. |
| Keywords: | Green taxes, Double Dividends, Capital Accumulation, Welfare |
| JEL: | E6 H2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2006017&r=pub |
| By: | Dahlberg, Matz (Department of Economics); Mörk, Eva (Department of Economics); Rattso, Jorn (Department of Economics); Ågren, Hanna (Department of Economics) |
| Abstract: | When investigating the effects of federal grants on the behavior of lower-level governments, it is hard to defend the handling of grants as an exogenous factor affecting local governments; federal governments often set grants based on characteristics and performance of local governments. In this paper we make use of a discontinuity in the Swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates. The formula for the distribution of funds is used as an exclusion restriction in an IV-estimation. We find evidence of crowding-in, where federal grants are shifted to more local spending, but not to reduced local tax rates. Our results thus confirm a flypaper effect for Sweden. |
| Keywords: | Fiscal federalism; grants; flypaper effect: local taxation; local government expenditure; causal effects |
| JEL: | H21 H71 H77 R51 |
| Date: | 2006–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2006_025&r=pub |
| By: | Pirttilä, Jukka (Labour Institute for Economic Research); Selin, Håkan (Department of Economics) |
| Abstract: | Dual income tax systems have become increasingly popular; yet, relatively little is <p> known about the consequences of implementing such tax systems. This paper uses a representative panel of taxpayers from the 1993 Finnish tax reform to measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform. The Finnish tax reform appears to be particularly suitable for analysing the effect of separating labour and capital income tax bases. The reform radically reduced the marginal tax rates on capital income to some, but not all, taxpayers, while the taxation of labour income was not reformed at the same time. We find that the reform led to a small positive impact on overall taxable income, but part of the positive response was probably offset by income shifting among the self-employed. |
| Keywords: | Taxable income; income shifting; dual tax system |
| JEL: | C21 H21 H31 |
| Date: | 2006–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2006_026&r=pub |