nep-pub New Economics Papers
on Public Finance
Issue of 2007‒07‒13
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Nonseparable Preferences and Optimal Social Security Systems By Narayana Kocherlakota; Borys Grochulski
  2. The Taxation of Couples By Patricia Apps; Ray Rees
  3. U.S. tax policy and health insurance demand: can a regressive policy improve welfare? By Karsten Jeske; Sagiri Kitao
  4. Is a Flat Tax politically feasible in a grown-up Welfare State? By Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
  5. The Marginal Cost of Public Funds for Excise Taxes in Thailand By Worawan Chandoevwit and Bev Dahlby

  1. By: Narayana Kocherlakota; Borys Grochulski
    Date: 2007
  2. By: Patricia Apps; Ray Rees
    Abstract: This paper is concerned with the question of how couples should be taxed. One reason for the importance of this issue is simply that the overwhelming majority of individuals live in households formed around couples, and so it could be argued that empirically, this is the single most important problem in personal income taxation. A second reason is that the economic theory of optimal taxation and tax reform, at least as it is presented in the mainstream literature, provides little guidance on this issue, resting as it does on models of the single person household. An old insight in the earlier public .nance literature is that any discussion of the taxation of two-person households necessarily involves the recognition of the importance of household production. In this paper we try to show how a simple model of household production can be used to help the analysis of optimal taxation and tax reform, and to put the "conventional wisdom", which says that it is optimal to tax women on a separate, lower tax schedule than men, on a .rmer basis. What emerges clearly from the analysis is how centrally important the relationship between productivity in household production and female labour supply really is, and how little we know about it empirically.
    Keywords: Optimal taxation, household production, labour supply
    JEL: H21 D13 J22
    Date: 2007–07
  3. By: Karsten Jeske; Sagiri Kitao
    Abstract: The U.S. tax policy on health insurance is regressive because it favors only those offered group insurance through their employers, who tend to have a relatively high income. Moreover, the subsidy takes the form of deductions from the progressive income tax system, giving high-income earners a larger subsidy. To understand the effects of the policy, we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance. We use the Medical Expenditure Panel Survey to calibrate the process for income, health expenditures, and health insurance offer status through employers and succeed in matching the pattern of insurance demand as observed in the data. We find that despite the regressiveness of the current policy, a complete removal of the subsidy would result in a partial collapse of the group insurance market, a significant reduction in the insurance coverage, and a reduction in welfare coverage. There is, however, room for raising the coverage and significantly improving welfare by extending a refundable credit to the individual insurance market.
    Date: 2007
  4. By: Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
    Abstract: The introduction of a flat tax is supposed to have several advantages. Administration and compliance costs are reduced, as well as incentives for tax evasion. Furthermore, positive employment and growth effects are expected. Despite these advantages, a flat rate tax is not very popular in most Western European countries. The most important objection against a flat tax states that a flat rate tax would be inequitable and unfair. The present paper uses a simulation model based on a unique database of German micro data to provide empirical evidence for the analysis of the equity and efficiency effects as indicators for the political feasibility of flat rate tax reforms. Our analysis shows that the selection of the schedule and tax base parameters are crucial for the e¤ects of flat tax reforms in terms of equity and efficiency. A flat rate tax with a higher basic allowance and a higher single rate has less harmful distributional effects than a flat rate tax with low basic allowance and tax rate. Nevertheless, the scenario with the lowest parameter values for basic allowance and tax rate is the only alternative that leads to positive labour supply and significantly positive welfare effects. Both labour supply and static welfare e¤ects, however, are quite small. Although we have derived our results for the case of Germany, we do think that similar patterns would be observed in other countries of Western Europe. If this proves to be correct, it will be hard for ‡at tax reforms to invade the grown-up welfare states of "Old Europe".
    Keywords: Flat Tax reform, equity, efficiency, distribution, welfare
    JEL: D31 D60 H20
    Date: 2007
  5. By: Worawan Chandoevwit and Bev Dahlby
    Abstract: The authors extend the Ahmad and Stern (1984) framework for calculating the marginal cost of public funds (MCF) for excise taxes in Thailand by incorporating non-tax distortions caused by (a) environmental externalities, (b) public expenditure externalities, (c) market power in setting prices, (d) addiction, and (e) smuggling or tax evasion. Our calculations, based on our benchmark parameter values, indicates that the MCFs are 0.532 for fuel excise taxes, 2.187 for tobacco excise taxes, 2.132 for alcohol excise taxes and 1.080 for the VAT. Using pro-poor distributional weights does not change the relative social marginal cost of raising revenues through the excise taxes.
    Keywords: marginal cost of public funds, excise taxes, tax reform, excess burden
    Date: 2007–07–05

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