nep-pub New Economics Papers
on Public Finance
Issue of 2007‒11‒10
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Analysing the Effects of Tax-Benefit Reforms on Income Distribution: A Decomposition Approach By Olivier Bargain; Tim Callan
  2. On the equivalence between progressive taxation and inequality reduction By Biung-Ghi Ju; Juan D. Moreno-Ternero
  3. Tax Structure and Female Labour Market Participation: Evidence from Ireland By Tim Callan; Arthur van Soest; John R. Walsh
  4. Tax Evasion: Cheating Rationally or Deciding Emotionally? By Giorgio Coricelli; Mateus Joffily; Claude Montmarquette; Marie-Claire Villeval
  5. Tax Compliance, Tax Morale And Governance Quality By Benno Torgler; Markus Schaffner; Alison Macintyre
  6. Family Bargaining and Taxes: A Prolegomenon to the Analysis of Joint Taxation By Robert A. Pollak
  7. Progressive Taxation and Corporate Liquidation: Analysis and Policy Implications By Elettra Agliardi; Rossella Agliardi
  8. Taxing Foreign Profits with International Mergers and Acquisitions By Johannes Becker; Clemens Fuest

  1. By: Olivier Bargain (University College Dublin, CHILD and IZA); Tim Callan (Economic and Social Research Institute and IZA)
    Abstract: To assess the impact of tax-benefit policy changes on income distribution over time, we suggest a methodology based on counterfactual simulations. We start by decomposing changes in inequality/poverty indices into three contributions: reforms of the tax-benefit structure (rules, rates, etc.), changes in nominal levels of market incomes and tax-benefit parameters (benefit amounts, tax bands, etc.), and all other changes in the underlying population (market income inequality, demographic composition, employment level, etc.). Then, the decomposition helps to extract an absolute measure of the impact of tax-benefit changes on inequality when evaluated against a distributionally-neutral benchmark, i.e., a situation where tax-benefit parameters are adjusted in line with income growth. We apply this measure to assess recent policy changes in twelve European countries. Finally, the full decomposition allows quantifying the relative role of policy changes compared to all other factors. We provide an illustration for France and Ireland and check the sensitivity of the results to the decomposition order.
    Keywords: tax-benefit policy, inequality, poverty, decomposition, microsimulation
    JEL: H23 H53 I32
    Date: 2007–09
  2. By: Biung-Ghi Ju (Department of Economics, Korea University); Juan D. Moreno-Ternero (Universidad de Malaga and CORE, Universite catholique de Louvain)
    Abstract: We establish the precise connections between progressive taxation and inequality reduction, in a setting where the level of tax revenue to be raised is exogenously fixed and tax schemes are balanced. We show that, in contrast with the traditional literature on taxation, the equivalence between inequality reduction and the combination of progressivity and income order preservation does not always hold in this setting. However, we show that, among rules satisfying consistency and, either revenue continuity, or revenue monotonicity, the equivalence remains intact.
    Keywords: progressivity, inequality reduction, income order preservation, consistency, taxation
    JEL: C70 D63 D70 H20
    Date: 2007
  3. By: Tim Callan (ESRI and IZA); Arthur van Soest (Tilburg University, RAND and IZA); John R. Walsh (ESRI)
    Abstract: How great an effect does the structure of income taxes have on women’s labour market participation? This issue is investigated using a discrete choice static labour supply model for married couples in Ireland. The model incorporates fixed costs of working and simultaneously explains participation decisions and preferred hours of work. Details of the tax system are fully incorporated, and key elements of the welfare system are also taken into account. The model is estimated using data from the 1994 wave of the Living in Ireland Survey. The results are used to analyse the labour supply effects of a move to greater independence in the tax treatment of couples. The influence of tax structure on participation is reconsidered in the light of trends in women’s participation in the labour market and two key changes in the structure of taxation: a shift from a joint or aggregated basis of assessment to an "incomesplitting" system in 1980 and a further substantial shift from income-splitting towards greater independence from 2000 onwards.
    Keywords: labour supply, discrete choice, micro-simulation
    JEL: H31 J22
    Date: 2007–10
  4. By: Giorgio Coricelli (CNRS); Mateus Joffily (CNRS); Claude Montmarquette (CIRANO, University of Montréal); Marie-Claire Villeval (CNRS-GATE, University of Lyon and IZA)
    Abstract: The economic models of tax compliance predict that individuals should evade taxes when the expected benefit of cheating is greater than its expected cost. When this condition is fulfilled, the high compliance however observed remains a puzzle. In this paper, we investigate the role of emotions as a possible explanation of tax compliance. Our laboratory experiment shows that emotional arousal, measured by Skin Conductance Responses, increases in the proportion of evaded taxes. The perspective of punishment after an audit, especially when the pictures of the evaders are publicly displayed, also raises emotions. We show that an audit policy that induces shame on the evaders favors compliance.
    Keywords: tax evasion, emotions, neuro-economics, physiological measures, shame, experiments
    JEL: C91 C92 D87 H26
    Date: 2007–10
  5. By: Benno Torgler; Markus Schaffner; Alison Macintyre
    Abstract: Taxpayers are more compliant than the traditional economic models predict. Why? The literature calls it the “puzzle of tax compliance”. In this paper we use field, experimental and survey data to investigate the empirical evidence on whether presence of tax morale helps to resolve this puzzle. The results reveal a strong correlation between tax morale and tax evasion/compliance which confirms the value of taking the research a step further by looking at the determinants of tax morale. We explore this question with a particular focus on the importance of governance quality.
    Keywords: tax morale, tax compliance, tax evasion, institutional and governance quality, social capital.
    JEL: H26
    Date: 2007–10–17
  6. By: Robert A. Pollak (Washington University in St. Louis, NBER, CESifo and IZA)
    Abstract: Does joint taxation disadvantage women? To answer that question, this paper begins by reviewing unitary and bargaining models of intrafamily allocation, and then discusses the determinants of "bargaining power" in a world without taxes. It argues that wage rates rather than earnings are determinants of bargaining power, and then argues that productivity in household production is also a source of bargaining power. In the absence of human capital effects, joint taxation does not appear to disadvantage women in either divorce threat or separate spheres bargaining. Hence, the claim that joint taxation disadvantages women, if it is correct, depends on effects that operate through the incentives to accumulate human capital. But a satisfactory analysis of the effects of taxation on human capital awaits the further development of dynamic models of family bargaining.
    Keywords: joint taxation, family bargaining, household production
    JEL: H21 H24 D13 J22
    Date: 2007–10
  7. By: Elettra Agliardi (University of Bologna and The Rimini Centre for Economics Analysis, Italy.); Rossella Agliardi (University of Bologna)
    Abstract: This paper contributes to the debate on alternative corporate tax schemes, employing a rigorous real option methodology which has never been used to study both liquidation policy and taxation. Different tax systems are considered, according to whether the tax regime is progressive or flat and losses are deductible or not. The critical liquidation threshold is derived as a function of interest expenses, the firmÕs driving parameters and the tax rates and taxation brackets. It is shown that only the adoption of a flat tax plan does not interfere with the firmÕs liquidation policy, while any progressive tax schedule can slow down or speed up the closure policy.
    Keywords: Corporate debt, default risk, progressive tax, real options.
    JEL: G3 G32 G33 G12 H2 H32
    Date: 2007–07
  8. By: Johannes Becker (University of Cologne); Clemens Fuest (University of Cologne)
    Abstract: A large part of border crossing investment takes the form of international mergers and acquisitions. In this paper, we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership, rather than a reallocation of real capital. We find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions. The deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality. The tax exemption system is optimal if ownership advantage is a public good within the multinational firm. But the cross border cash flow tax system dominates the exemption system in terms of optimality properties.
    Keywords: Corporate Taxation, Mergers and Acquisitions, International Capital Flows
    JEL: H25 F23
    Date: 2007

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