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on Public Finance |
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Issue of 2007‒09‒09
seven papers chosen by |
| By: | Cahuc, Pierre; Laroque, Guy |
| Abstract: | We analyze optimal taxation in an economy with monopsonistic labour markets. The individuals, whose only decisions are whether to work, or not, have heterogeneous productivities and opportunity costs of work. Given its preferences for redistribution, the government, which does not observe the opportunity costs of work, chooses a tax scheme implementing the second best allocation. We compare the optima in the competitive and monopsonistic environments. We find that the government can always implement the second best allocation of the competitive economy in the monopsonistic environment. The optimal tax schedule comprises employment subsidies financed by taxes on profits. In this setup, there is no room for a minimum wage. |
| Keywords: | Minimum wage; Monopsony; Optimal taxation |
| JEL: | H31 J30 J42 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6416&r=pub |
| By: | Marco Cagetti; Mariacristina De Nardi |
| Abstract: | We study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policy makers are worried about: business investment, borrowing constraints, estate transmission, and wealth inequality. We use our model to estimate effective estate taxation. We consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. We find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population. |
| Keywords: | Taxation ; Wealth |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-07-08&r=pub |
| By: | Hindriks, Jean J.G.; Peralta, Susana; Weber, Shlomo |
| Abstract: | The paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes (Boadway and Flatters, 1982, and Weingast, 2006). We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region. |
| Keywords: | equalization; fiscal; fiscal federalism; heterogeneous regions; public investments |
| JEL: | C72 H23 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6431&r=pub |
| By: | Funke, Michael (BOFIT); Strulik, Holger (BOFIT) |
| Abstract: | This paper analyses the long-run effects of Estonia’s 2000 Income Tax Act with a dynamic general equilibrium model. Specifically, we consider the impact of the shift from an imputation system to one where companies only pay taxes on distributed profits. Balanced growth paths, transitional dynamics and welfare costs are computed. Our results indicate that the 2000 Income Tax Act leads to higher per capita income and investment, but lower welfare. A sensitivity analysis shows the results are rather robust. |
| Keywords: | growth; welfare; taxation; tax reform; Estonia |
| JEL: | H25 H32 O41 O52 |
| Date: | 2007–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2003_010&r=pub |
| By: | Gopi Shah Goda; John B. Shoven; Sita Nataraj Slavov |
| Abstract: | Medicare as a Secondary Payer (MSP) legislation requires employer-sponsored health insurance to be a primary payer for Medicare-eligible workers at firms with 20 or more employees. While the legislation was developed to better target Medicare services to individuals without access to employer-sponsored insurance, MSP creates a significant implicit tax on working beyond age 65. This implicit tax is approximately 15-20 percent at age 65 and increases to 45-70 percent by age 80. Eliminating this implicit tax by making Medicare a primary payer for all Medicare-eligible individuals could significantly increase lifetime labor supply due to the high labor supply elasticities of older workers. The extra income tax receipts from such a policy would likely offset a large percentage of the estimated costs of making Medicare a primary payer. |
| JEL: | H51 J14 J21 J26 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13383&r=pub |
| By: | Borys Grochulski; Narayana Kocherlakota |
| Abstract: | In this paper, we consider economies in which agents are privately informed about their skills, which are evolving stochastically over time. We require agents' preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal nonseparabilities in preferences like habit formation. We show that such nonseparabilities imply that optimal asset income taxes are necessarily retrospective in nature. We show that under weak conditions, it is possible to implement a socially optimal allocation using a social security system in which taxes on wealth are linear, and taxes/transfers are history-dependent only at retirement. The average asset income tax in this system is zero. |
| JEL: | E60 H21 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13362&r=pub |
| By: | Gopi Shah Goda; John B. Shoven; Sita Nataraj Slavov |
| Abstract: | Social Security provides spousal benefits in retirement to secondary workers in married couples based on the primary worker's earnings record. In addition, Social Security pays spousal benefits to divorced secondary workers whose marriages lasted at least ten years. However, if a marriage failed in less than ten years, no spousal benefits are paid. The spousal benefit is particularly valuable to secondary workers in couples where there is a large disparity in earnings between the primary worker and the secondary worker. We examine whether these couples, who have more to gain from extending their marriage to ten years, are more likely to delay marriage to the tenth year relative to a control group. We find that vulnerable couples are slightly more likely to delay divorce from year nine to year ten; however, the effect is statistically insignificant and small in magnitude. While the "cliff"-vesting of retirement benefits for divorced spouses raises equity concerns, it does not appear to distort incentives for divorce. |
| JEL: | H55 J12 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13382&r=pub |