nep-pub New Economics Papers
on Public Finance
Issue of 2007‒09‒30
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Pareto-Improving Income Tax Reform By Peter Sinclair
  2. Does Tax Competition Tame the Leviathan? By Mario Jametti; Marius Brülharty
  3. Corporate marginal tax rate, tax loss carryforwards and investment functions: empirical analysis using a large German panel data set By Ramb, Fred

  1. By: Peter Sinclair
    Abstract: This paper examines two tax regimes in a world where abilities to earn differ. It compares the distributions of utilities under a “flat” tax regime where all income is subject to a common tax rate, and proceeds finance a common transfer paid to all, with one with a menu of tax rates and transfers from which each can select the combination that suits him or her best. When the two regimes are optimized under a social welfare function that weights minimum utilities enough, or reflects a large enough requirement for government spending, it turns out that everyone is better off in the second regime than the first.
    Keywords: Non-linear income tax, redistribution, Pareto improving tax reform
    JEL: H20
    Date: 2007–07
  2. By: Mario Jametti (Department of Economics, York University); Marius Brülharty (University of Lausanne)
    Abstract: We study the impact of tax competition on equilibrium taxes and welfare, focusing on the jurisdictional fragmentation of federations. In a representative-agent model of fiscal federalism, fragmentation among jurisdictions with benevolent tax-setting authorities unambiguously reduces welfare. If, however, tax-setting authorities pursue revenue maximization, fragmentation, by pushing down equilibrium tax rates, may under certain conditions increase citizen welfare. We exploit the highly decentralized and heterogeneous Swiss fiscal system as a laboratory for the estimation of these e¤ects. While for purely direct-democratic jurisdictions (which we associate with benevolent tax setting) we find that tax rates increase in fragmentation, fragmentation has a moderating e¤ect on the tax rates of jurisdictions with some degree of delegated government. Our results thereby support the view that tax competition can be second-best welfare enhancing by constraining the scope for public-sector revenue maximization.
    Keywords: tax competition,optimal taxation,government preferences,fiscal federalism,direct democracy
    JEL: H2 H7 D7
    Date: 2007–09
  3. By: Ramb, Fred
    Abstract: This study is the first empirical analysis to investigate the relationship between the investment behaviour of firms resident in Germany and the empirically determined marginal tax rates developed by John R. Graham. It is based on the Bundesbank's corporate balance sheet statistics for the period 1971-2002. In an autoregressive distributed lag model, the marginal tax rate is shown to be significant, with an elasticity of between 0.1 and 0.2. An error correction model does not produce any plausible results for the marginal tax rate. Graham's marginal tax rates are a complement to the methods typically used to determine the effective marginal tax rates and effective average tax rates.
    Keywords: Corporate marginal tax rate, tax loss carryforward, investment behaviour
    JEL: D21 H25
    Date: 2007

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