nep-pub New Economics Papers
on Public Finance
Issue of 2007‒11‒03
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Positive Theory of Income Taxation By Oriol Carbonell-Nicolau
  2. Optimal Taxation : The Design of Child Related Cash- and In-Kind-Benefits By Peter Haan; Katharina Wrohlich
  3. Taxing deficits to restrain government spending and foster capital accumulation By Stähler, Nikolai
  4. Does Tax Competition Tame the Leviathan? By Marius BRÜLHART; Mario JAMETTI
  5. Do Tax Cuts Starve the Beast: The Effect of Tax Changes on Government Spending By Christina D. Romer; David H. Romer
  6. The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis By Kevin A. Hassett; Aparna Mathur; Gilbert E. Metcalf
  7. The distribution of expenditure tax burden before and after tax reform: The case of Cameroon By Tabi Atemnkeng Johannes; Atabongawung Joseph Nju; Afeanyi Azia Theresia

  1. By: Oriol Carbonell-Nicolau (Rutgers University)
    Abstract: We propose a dynamic version of the standard two-party electoral competition model adapted to nonlinear income taxation. The theory has a number of desirable features. First, equilibria always exist, even though the set of admissible tax policies is multidimensional. Second, the Nash set can be characterized generically, and its components give sharp predictions. Third, the features of equilibrium tax policies depend only on empirically meaningful fundamentals. Equilibrium tax schedules benefit the more numerous income groups and place the burden of taxation on income groups with fewer voters. For empirical income distributions, the features of an equilibrium tax schedule are reminiscent of Director's law of public income redistribution (Stigler [36]).
    Keywords: nonlinear income taxation, electoral competitionh, Director's law, extensive zero-sum game
    JEL: H23 H31 D7
    Date: 2007–10–26
  2. By: Peter Haan; Katharina Wrohlich
    Abstract: This paper contributes to the debate about the optimal design of tax-transfer systems. Based on the theory of optimal taxation, combined with microsimulation and microeconometric techniques we derive the welfare function which makes the current German tax and transfer system for single women optimal. Furthermore, we compare the welfare function conditional on the presence and age of children and assess how reforms of in-kind childcare transfers would affect the welfare function. This analysis allows us to derive conclusions about the optimal design of child related transfers and in-kind benefits.
    Keywords: Optimal taxation, labor supply behavior, transfers for children
    JEL: C23 C25 J22 J64
    Date: 2007
  3. By: Stähler, Nikolai
    Abstract: In a dynamic model of fiscal policy, social polarization provokes a deficit bias. Policy advisors have recently proposed that governments running a deficit should be forced to generate additional tax revenue. We show that this deficit taxation reduces the deficit bias as it internalizes the externality different lobby groups impose on others. The mechanism described here is not due to the political risk of being elected out of office because the private sector dislikes taxation. Lower government spending and the resulting reduced deficit bias augment capital accumulation.
    Keywords: fiscal rules, deficit taxation, polarization, capital accumulation
    JEL: E62 H61 H62 H63
    Date: 2007
  4. By: Marius BRÜLHART; Mario JAMETTI
    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: tax competition; optimal taxation; government preferences; fiscal federalism; direct democracy
    JEL: H2 H7 D7
    Date: 2007–09
  5. By: Christina D. Romer; David H. Romer
    Abstract: The hypothesis that decreases in taxes reduce future government spending is often cited as a reason for cutting taxes. However, because taxes change for many reasons, examinations of the relationship between overall measures of taxation and subsequent spending are plagued by problems of reverse causation and omitted variable bias. To deal with these problems, this paper examines the behavior of government expenditures following legislated tax changes that narrative sources suggest are largely uncorrelated with other factors affecting spending. The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, they suggest that tax cuts may actually increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases. Examination of four episodes of major tax cuts reinforces these conclusions.
    JEL: E62 H50 H60 N12
    Date: 2007–10
  6. By: Kevin A. Hassett; Aparna Mathur; Gilbert E. Metcalf
    Abstract: This paper measures the direct and indirect incidence of a carbon tax using current income and two measures of lifetime income to rank households. Our two measures of lifetime income are current consumption and adjusted or "lifetime" consumption. The use of the adjusted lifetime measure for consumption is intended to correct for long-run predictable swings in behavior. Our results suggest that in general, carbon taxes appear to be more regressive when income is used as a measure of economic welfare, than when consumption (current or lifetime) is used to measure incidence. Further, the direct component of the tax, in any given year, is significantly more regressive than the indirect component. In fact, for 1987, the indirect component of the tax is actually mildly progressive, as the higher deciles tend to pay a larger fraction of their consumption in carbon taxes. Finally we observe a shift over time with the direct component of carbon taxes becoming larger in relation to the indirect component. These effects have mostly offset each other, and the overall distribution of the total tax burden has not changed much over time.
    JEL: H2 Q4 Q54
    Date: 2007–10
  7. By: Tabi Atemnkeng Johannes; Atabongawung Joseph Nju; Afeanyi Azia Theresia
    Abstract: This paper examines the incidence of indirect taxation in Cameroon in 1983, 1996 and 2001. Using household surveys for these three years, the paper looks into which consumption taxes are progressive and determines if changes in tax policy influenced the welfare of the poor. The paper suggests that the incidence of expenditure taxes changes with the changing economic environment and reveals that the indirect tax reforms of 1994 and 1999 have been generally pro-poor. In the aggregate, consumption taxes became more progressive than before, partly due to changing consumption patterns following the introduction of new taxes or replacement of old ones.
    Date: 2006–11

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