nep-pub New Economics Papers
on Public Finance
Issue of 2007‒04‒14
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Corporate Tax Policy, Entrepreneurship and Incorporation in the EU By Ruud A. de Mooij; Gaëtan Nicodème
  2. Unit vs. Ad Valorem Taxes in Multi-Product Cournot Oligopoly By Lapan, Harvey E.; Hennessy, David A.
  3. Assessing fiscal soundness - Theory and practice By Nicola Giammarioli; Christiane Nickel; Philipp Rother; Jean-Pierre Vidal
  4. The Laffer Courve and government optimization of the tax revenues: The Cartagena de Indias case By Toro González, Daniel; Doria, Martha

  1. By: Ruud A. de Mooij (Erasmus Universiteit Rotterdam); Gaëtan Nicodème (European Commission, and Solvay Business School (ULB))
    Abstract: In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on firm births and legal form of business to analyze income shifting via increased entrepreneurship and incorporation. The results suggest that lower corporate taxes exert an ambiguous effect on entrepreneurship. The effect on incorporation is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 10% and 17% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.2%-points since the early 1990s.
    Keywords: Corporate tax; Personal tax; Entrepreneurship; Incorporation; Income shifting
    JEL: H25 L26
    Date: 2007–03–22
  2. By: Lapan, Harvey E.; Hennessy, David A.
    Abstract: The welfare dominance of ad valorem taxes over unit taxes in a single-market Cournot oligopoly is well-known. This article extends the analysis to multi-market oligopoly. Provided all ad valorem taxes are positive, unit costs are constant, firms are active in all considered markets, and a representative consumer has convex preferences, it is shown that ad valorem taxes dominate in multi-product equilibrium. We discuss the role of unit cost covariances across multi-product firms in determining the extent of cost efficiencies arising under ad valorem taxation. The issue of merger under oligopoly is also considered. Conditions are identified under which a merger increases the sum of consumer and producer surpluses while also increasing the revenue yield from a set of unit taxes. If not all firms are active in all considered markets, then it is also shown that additional conditions are required to ensure the dominance of ad valorem taxes. In multi-input Cournot oligopsony, however, unit taxation welfare dominates. This is because ad valorem taxes on inputs reduce demand elasticities, amplifying market power distortions.
    Keywords: ad valorem tax; imperfect competition; oligopoly merger; quantity-setting game; specific tax; tax efficiency; tax revenue
    JEL: D4 H2
    Date: 2007–04–10
  3. By: Nicola Giammarioli (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Christiane Nickel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Philipp Rother (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jean-Pierre Vidal (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper presents a survey of methods for assessing fiscal soundness, i.e. the capability of governments to honour their obligations in the short run and in the long run. The need for a comprehensive monitoring of fiscal soundness derives from the risks to economic stability that arise from the actual or expected difficulty a government may have in honouring its obligations. For the long run, methods derived from the government’s intertemporal budget constraint make it possible to assess the size of a necessary adjustment to achieve sustainability of the debt burden. Uncertainty regarding shocks to the fiscal situation or the behaviour of financial market participants calls for the monitoring of financial flows and government obligations in the short run. Vigilance needs to be all the higher, the greater the uncertainty regarding long-term sustainability.
    Date: 2007–03
  4. By: Toro González, Daniel; Doria, Martha
    Abstract: The public managers worries to increase the local government revenues are almost always related with changes in the tax rates, affecting all the agents in the economy. However, at the same time tax exeptions are used like policy instrument in order to achieve economic growth in some sectors, increasing the pressure over some other sectors. This document analize the effect of the tax rates changes over the local government revenues by the estimation of elasticities. This relation is known as the Laffer Courve. The main results show an inelastic relation between the tax rate and the revenues, wich means that an increase of 1% in the tax rate generate an increase in local government revenues in less than a 1%. The results of the model sugesst that a local policy oriented to raise the local government revenues increasing the tax rate is not effective.
    Keywords: Cartagena; local government revenues; tax rates; Laffer Courve.
    JEL: H21 H30
    Date: 2007–04–01

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