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on Public Finance |
| By: | Stefania Albanesi (Department of Economics, Columbia University) |
| Abstract: | This paper studies optimal taxation of entrepreneurial capital with private information and multiple assets. Entrepreneurial activity is subject to a dynamic moral hazard problem and entrepreneurs face idiosyncratic capital risk. We first characterize the optimal allocation subject to the incentive compatibility constraints resulting from the private information. The optimal tax system implements such an allocation as a competitive equilibrium for a given market structure. We consider several market structures that differ in the assets or contracts traded and obtain three novel results. First, differential asset taxation is optimal. Marginal taxes on bonds depend on the correlation of their returns with idiosyncratic capital risk, which determines their hedging value. Entrepreneurial capital always receives a subsidy relative to other assets in the bad states. Second, if entrepreneurs are allowed to sell equity, the optimal tax system embeds a prescription for double taxation of capital income at the firm level and at the investor level. Finally, we show that taxation of assets is essential even with competitive insurance contracts, when entrepreneurial portfolios are also unobserved. |
| JEL: | D82 E22 E62 G18 H2 H21 H25 H3 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:clu:wpaper:0607-11&r=pub |
| By: | Simeon Djankov; Tim Ganser; Caralee McLiesh; Rita Ramalho; Andrei Shleifer |
| Abstract: | We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade. |
| JEL: | G38 H25 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13756&r=pub |
| By: | Gilbert E. Metcalf |
| Abstract: | Tax expenditures are a major source of support for energy related activities in the federal budget exceeding direct budget support for energy by a factor of nearly six. Focusing on the policy goals of reducing greenhouse gas emissions and petroleum consumption, I find these tax expenditures highly cost ineffective at best and counterproductive at worse. The tax credit for ethanol is an example of a cost ineffective subsidy. The cost of reducing CO2 emissions through this subsidy exceeded $1,700 per ton of CO2 avoided in 2006 and the cost of reducing oil consumption over $85 per barrel. |
| JEL: | H2 H23 H24 Q42 Q48 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13753&r=pub |
| By: | Sanghamitra Bandyopadhyay; Joan Esteban; |
| Abstract: | We introduce a model of redistributive income taxation and publicexpenditure. Besides redistributing personal income by means of taxesand transfers, the government supplies goods and services. Thegovernment chooses the tax schedule that is found acceptable by thelargest share possible of the population. We show that there is a uniqueincome tax schedule that is universally acceptable. The progressivity ofthe income tax is shown to depend on the composition of the publicexpenditure and on the substitutability between the goods and servicessupplied by the government and the consumption goods privatelyobtained through the market. We test the empirical implications of themodel. Specifically, we use OECD data to observe the relationshipbetween marginal tax rates and the distribution over the taxpayers of thebenefits produced by the specific composition of the governmentexpenditure in the provision of goods and services. We confirm that forlower elasticities of substitution between public and private goods, thereis a negative relationship between marginal tax rates and pro-taxpayerbias,and for higher elasiticities, there is a positive relationship. |
| Keywords: | Government policy, Income Taxation, Public Expenditure |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stidar:95&r=pub |
| By: | María A. García-Valiñas; Roberto Fernández Llera; Benno Torgler |
| Abstract: | Do people prefer a society with an extensive social welfare system with high taxes, or low taxes but lax redistributive policies? Although economists have for a long time investigated the trade-off mechanism between equity and efficiency, surprisingly little information is available about citizens’ preferences over the distribution of income in a society. The aim of this paper is reduce this shortcoming, investigating in an empirical study working with World Values Survey, what shapes individuals’ preferences for income equality in Spain. We present evidence that not only traditional economic variables are relevant to be considered, but also factors such as ideology, political interest, fairness perception about others or trust in institutions, are key determinants to understand preferences towards redistribution and equality. Furthermore, we also find that regional conditions affect the citizens’ preferences for income equality. Higher income inequality leads to stronger preferences for equality. On the other hand, there is the tendency that higher social expenditures reduce the preferences for income equality. |
| Keywords: | redistribution, inequality, welfare state, social capital, regional conditions |
| JEL: | H23 H53 I31 |
| Date: | 2008–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:226&r=pub |