nep-pub New Economics Papers
on Public Finance
Issue of 2007‒10‒13
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Does Tax Competition Tame the Leviathan? By Brülhart, Marius; Jametti, Mario
  2. Estimating Income Responses to Tax Changes: A Dynamic Panel Data Approach By Holmlund, Bertil; Söderström, Martin
  3. Tax Progressivity, Income Distribution and Tax Non-Compliance By Tatiana Damjanovic; David Ulph
  4. Tax systems and tax reforms in Latin America: country studies By Bernardi, Luigi; Barreix, Alberto; Marenzi, Anna; Profeta, Paola

  1. By: Brülhart, Marius; Jametti, Mario
    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 effects. 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 effect 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: direct democracy; fiscal federalism; government preferences; optimal taxation; tax competition
    JEL: D7 H2 H7
    Date: 2007–10
  2. By: Holmlund, Bertil (Department of Economics); Söderström, Martin (National Institute of Economic Research)
    Abstract: elasticity of taxable income with respect to the net-of-tax rate, i.e., one minus the marginal tax <p> rate. We offer new evidence on this matter by making use of a large panel of Swedish tax payers over the period 1991-2002. Changes in statutory tax rates as well as discretionary changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. The estimates of the long-run elasticity of income with respect to the net-of-tax rate typically hover in a range between 0.20 and 0.30. The short-run elasticities are in general smaller but less precisely estimated. We use the estimates to simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform turns out to have negligible effects on tax revenues and may even yield a fiscal surplus.
    Keywords: marginal tax rates; progressive taxes; earned income; tax reform
    JEL: H24 H31 J22
    Date: 2007–09–29
  3. By: Tatiana Damjanovic; David Ulph
    Abstract: This article applies a traditional industrial organization framework to the issue of tax compliance. First, we model the "tax advice" industry where the supplier helps taxpayers reduce their tax liability. Then we exploit the fact that more convex demand function results in lower equilibrium price and higher equilibrium quantity. Finally we uncover the factors determining the convexity of the demand for the tax minimisation industry and hence the equilibrium price and output. In particular, we find that lower pre-tax income inequality as well as a less progressive tax code may cause more tax minimisation activities. Therefore, the reduction of the highest tax rate may fail as a policy directed at improving tax discipline. One way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of penalty and monitoring functions.
    Keywords: tax compliance, tax administration, inequality, tax progressivity,tax monitoring, penalty function
    JEL: H21 H23 H26
    Date: 2007–09
  4. By: Bernardi, Luigi; Barreix, Alberto; Marenzi, Anna; Profeta, Paola
    Abstract: This paper is part of a wider research concerning taxation systems an reforms carried on ar the Departemnt of Pubic economics of the Uiversity of Pavia -I taly. These country studies refer to Argentina, Brazil, Chile, Costa Rica, Colombia, Mexico, Paraguay and Uruguay and are due to eminent native esperts. The papers depict and discuss the tax systems ad reforms in the aforementioned countries since the early 1990 to 2006.
    Keywords: Tax Systems; Tas reofoerms; Latin American countries
    JEL: H24 H2 H23
    Date: 2007–03–15

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