nep-pub New Economics Papers
on Public Finance
Issue of 2007‒11‒24
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Policy in Emerging Countries By Richard Bird; Eric Zolt
  2. Is a Flat Tax Feasible in a Grown-up Welfare State? By Clemens Fuest; Andreas Peichl; Thilo Schaefer
  3. Marco Fanno’s Tax Incidence Theory: A Formal Exposition By Arrigo Opocher
  5. Reinventing the Dutch tax-benefit system By Ruud de Mooij
  6. Taxing owner-occupied housing: comparing the Netherlands to other European Union countries By van der Hoek, M. Peter; Radloff, Sarah. E.

  1. By: Richard Bird; Eric Zolt (Eric Zolt, UCLA Richard Bird, Professor Emeritus of Economics and Senior Fellow, Institute of Municipal Finance and Governance.)
    Abstract: We consider in this paper how emerging countries may in practice best design and develop tax policies, given the complex economic and political environments they face. After an overview of what tax systems look like around the world, we discuss the principal objectives that countries may attempt to achieve through tax policy. We conclude by considering the broad political economy context within which tax policy and development issues must be designed and implemented. Our aim is to set out some of the basic issues facing tax policy in emerging countries and to outline some key elements that should be considered in designing the best feasible tax structure for any particular country at a particular time.
    Date: 2007
  2. By: Clemens Fuest (CPE, University of Cologne and IZA); Andreas Peichl (CPE, University of Cologne); Thilo Schaefer (CPE, University of Cologne)
    Abstract: The success of the flat rate tax in Eastern Europe suggests that this concept could also be a model for the welfare states of Western Europe. The present paper uses a simulation model to analyse the effects of revenue neutral flat rate tax reforms on equity and efficiency for the case of Germany. We find that a flat rate tax with a low tax rate and a low basic allowance yields positive static welfare effects amounting to approximately 1.8 per cent of income tax revenue but increases income inequality. The increase in income inequality can be avoided by combining a higher tax rate with a higher basic allowance. But in this case the efficiency gains vanish. We conclude that, due to their limited efficiency effects and their problematic distributional impact, flat tax reforms are unlikely to spill over to the welfare states of Western Europe.
    Keywords: flat tax reform, equity, efficiency, distribution, welfare
    JEL: D31 D60 H20
    Date: 2007–11
  3. By: Arrigo Opocher (Università di Padova)
    Abstract: Marco Fanno’s contributions to the theory of supply at joint cost and the theory of demand for substitute goods contain some original analyses of tax incidence, based on a “less partial” application of the Marshallian supply and demand paradigm. Fanno’s overall theory, however, soon fell into oblivion, partially due to the enormous success of the emerging Hicks-Allen approach, at the end of the 1930s; and so did his more practical results. In this paper, we present a modern formalisation of Fanno’s tax incidence theory, which tries to do justice to a series of results which have still today some normative validity.
    JEL: B31 B13 H22
    Date: 2007–11
  4. By: Bargain O; Callan T
    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 (eligibility rules, tax rate structure, etc.), changes in nominal levels of both market incomes and tax–benefit parameters (e.g. benefit amounts, tax bands), and all other changes in the underlying population (including market income inequality and demographic composition). 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 on 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: 2007–10
  5. By: Ruud de Mooij
    Abstract: European governments aim to raise labour supply, cut unemployment and, at the same time, maintain social cohesion. Yet, economists have stressed the trade-off between these objectives. This paper reviews the key policy insights from optimal tax theory to identify options for reform in the tax-benefit system that can potentially improve the equity-efficiency trade-off. Using a comprehensive applied general equilibrium model, we then explore whether reforms along these lines in the actual Dutch tax-benefit system will raise employment without sacrificing equality. The analysis reveals that selective tax relief for elastic secondary earners and low-skilled workers have this potential. A flat income tax structure - possibly combined with a negative income tax - worsens the equity-efficiency trade-off.
    Keywords: Tax-benefit system; Labour supply; Unemployment; the Netherlands; Applied general equilibrium
    JEL: D31 D58 H24 J22 J68
    Date: 2007–09
  6. By: van der Hoek, M. Peter; Radloff, Sarah. E.
    Abstract: This paper compares owner-occupied housing tax regimes in the Netherlands and the other countries in the EU-15. The Nether-lands appears to stand apart in two respects. First, in Luxembourg and the Netherlands owner-occupiers have to include an imputed rental income in their taxable income. Second, in the Netherlands, the tax-deductibility of mortgage interest payments is almost unre-stricted. The tax regime of owner-occupied homes increasingly erodes the personal income tax base in the Netherlands, so that higher tax rates are needed to collect a given amount of revenue. However, elimination or reduction of the mortgage interest deduction can only be realized gradually. Due to a lack of data both within the various tax regimes and across time periods, a comprehensive multivariate time-series comparison among the various tax regimes in the EU-15 is not pos-sible. Thus, the statistical analysis is limited to bivariate compari-sons.
    Keywords: owner-occupied housing; mortgage interest deduction; imputed rental income
    JEL: H2
    Date: 2007

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