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on Public Finance |
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Issue of 2007‒05‒19
four papers chosen by |
| By: | Alan Krause |
| Abstract: | This paper shows that tax reform techniques are well-suited to an examination of the Laffer argument, i.e., the possibility that an increase in a tax rate may reduce tax revenues (and vice versa). Our methodology allows us to examine the Laffer argument directly, without deriving the Laffer curve, which in turn allows us to conduct the analysis in a very general setting. Despite the high level of generality, we are able to reach some clear conclusions that provide formal support for the established intuitions that the Laffer effect requires: (i) a 'high' labour-income tax rate, and (ii) a 'large' labour supply response to wage changes. The notions of 'high' and 'large' are made precise in our framework. The analysis also provides indirect support for the intuition that it is never optimal for a government to operate on the downward-sloping segment of the Laffer curve. Finally, we show that our methods provide a theoretical framework for an empirical investigation. |
| Keywords: | Laffer argument, tax reform |
| JEL: | H2 H6 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:07/10&r=pub |
| By: | Nicolas Marceau (Universite du Quebec a Montreal); Steeve Mongrain (Simon Fraser University); John D. Wilson (Michigan State University) |
| Abstract: | We consider tax competition in a world with tax bases exhibiting different degrees of mobility, modeled as mobile and immobile capital. An agreement among countries not to give preferential treatment to mobile capital results in an equilibrium where mobile capital is nevertheless taxed relatively lightly. In particular, one or two of the smallest countries, measured by their stocks of immobile capital, choose relatively low tax rates, thereby attracting mobile capital away from the other countries, which are then left to set revenue maximizing taxes on their immobile capital. This conclusion holds regardless of whether countries choose their tax policies sequentially or simultaneously. In contrast, unrestricted competition for mobile capital results in the preferential treatment of mobile capital by all countries, without cross-country differences in the taxation of mobile capital. Nevertheless our main result is that the non-preferential regime generates larger global tax revenue, despite the sizable revenue loss from the emergence of low-tax countries. By extending the analysis to include cross country differences in productivities, we are able to resurrect a case for preferential regimes, but only if the productivity differences are sufficiently large. |
| Keywords: | Tax Competition, Capital Mobility |
| JEL: | F21 H87 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp07-09&r=pub |
| By: | Gersbach, Hans |
| Abstract: | We propose a two-stage process called minority voting to allocate public projects in a polity. In the first period, a society decides by a simple majority decision whether to provide the public project. If the proposal in the first period is rejected, the process ends. Otherwise the process continues, but only the members of the minority keep agenda and voting rights for the second stage, in which the financing scheme is determined. In the second stage, the unanimity rule or the simple majority rule is applied. We provide a first round of relative welfare comparisons between minority voting and simple majority voting and outline our research program. |
| Keywords: | democratic constitutions, minority voting, public projects |
| JEL: | D60 D72 H40 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:5567&r=pub |
| By: | Eren Inci (Boston College) |
| Abstract: | This paper focuses on the quality of entrepreneurs when individuals, who differ in terms of entrepreneurial ability and wealth, choose between entrepreneurship and wage-earning. A loan is required to become an entrepreneur. Four wealth classes form endogenously. Banks' inability to identify the ability of individuals leads them to offer pooling contracts to the poor and the lower-middle classes. Regardless of ability, all poor class individuals become workers and all lower-middle class individuals become entrepreneurs. Banks are able to offer separating contracts to the upper-middle and the rich classes. High-ability individuals in these wealth classes become entrepreneurs and their low-ability counterparts become workers. Equilibrium contracts may entail cross-subsidies within or between occupations. In some economies, a small success tax on entrepreneurs used to subsidize workers can increase the average quality of entrepreneurs and welfare by changing the thresholds of the wealth classes. In some others a reverse policy is required. Since the aggregate level of investment is fixed, the reason for these policies is not under- or overinvestment by entrepreneurs, as it often is in previous literature. |
| Keywords: | adverse selection; entrepreneurship; general equilibrium contract theory; moral hazard; occupational choice; success tax; wage subsidy |
| JEL: | D43 D82 H25 L26 |
| Date: | 2007–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:666&r=pub |