nep-pub New Economics Papers
on Public Finance
Issue of 2008‒02‒16
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax avoidance and the political appeal of progressivity By Matias Nunez
  2. Tax Loss Offset Restrictions - Last Resort for the Treasury? : An Empirical Evaluation of Tax Loss Offset Restrictions Based on Micro Data By Nadja Dwenger
  3. The tax treatment of homeowners and landlords and the progressivity of income taxation By Matthew Chambers; Carlos Garriga; Don Schlagenhauf
  4. Should Continued Family Firms Face Lower Taxes Than Other Estates? By Grossmann, Volker; Strulik, Holger
  5. An Analysis of Effective Marginal Tax Rates in Quebec By Jean-Yves Duclos; Bernard Fortin; Andrée-Anne Fournier
  6. Optimal Provision of Multiple Excludable Public Goods By Hanming Fang; Peter Norman
  7. Toward an Efficiency Rationale for the Public Provision of Private Goods By Hanming Fang; Peter Norman

  1. By: Matias Nunez (PREG - Pole de recherche en économie et gestion - CNRS : UMR7176 - Polytechnique - X)
    Abstract: Empiriquement, on observe que la majorité des Etats a fait le choix d’un système d’imposition progressif. Pourtant, le fondement théorique de ce choix n’est pas évident. Si l’on interprète le système d’imposition appliquée comme le résultat d’un jeu entre deux partis politiques Downsiens, le fait que la majorité de la population soit relativement pauvre permet de conforter l’observation empirique. Cependant, des résultats théoriques récents montrent que, à l’équilibre, des électeurs purement égoïstes ne font pas toujours ce choix-là. Cet article tente de raffiner ces derniers modèles théoriques pour proposer une autre explication au choix d’un système progressif. Notre thèse est la suivante : la présence d’évasion fiscale – caractéristique importante des systèmes d’imposition sur le revenu – a des effets sur l’équilibre du jeu politique en modifiant les préférences des individus les plus riches de la société. Dans un premier temps, l’ensemble des équilibres en stratégies mixtes du jeu est caractérisé (pour des systèmes d’imposition de type quadratique), et on montre alors que l’évasion fiscale renforce l’élection de systèmes progressifs d’imposition. Dans un deuxième temps, on analyse un cas de système d’imposition de type “wiggling" en montrant que l’évasion fiscale mène, quand elle est suffisamment importante, à l’élection de systèmes progressifs d’imposition avec certitude.
    Keywords: Compétition électorale;Taxtation du revenu progressive;Evasion fiscale;Equilibre en stratégies mixtes
    Date: 2007
  2. By: Nadja Dwenger
    Abstract: In Germany, the tax loss carry-forward of corporations significantly increased over the last decade. At the same time only a small percentage of losses have been effectively offset in the following periods. One potential reason for this puzzle is that stricter loss offset restrictions have been introduced in recent years. I use a newly developed micro simulation model for the corporate sector in Germany to evaluate the fiscal effects of these restrictions. Additionally, distributional breakdowns concerning the amounts of tax loss carry-forward and the effects of loss offset restrictions are provided. I find that the restrictions on the use of tax loss carryback are rather ineffective while the newly introduced minimum taxation considerably increases yearly tax revenue by 1.1 billion €.
    Keywords: Micro simulation, loss offset restrictions, corporate taxation, tax loss carryforward, tax loss carry-back, tax reform
    JEL: H25 C8
    Date: 2008
  3. By: Matthew Chambers; Carlos Garriga; Don Schlagenhauf
    Abstract: This paper analyzes the connection between the asymmetric tax treatment of homeowners and landlords and the progressivity of income taxation using a quantitative overlapping generations general equilibrium model with housing and rental markets. Our model emphasizes the determinants of tenure choice (owning versus renting) and the household decision to supply housing services to the rental market. This formulation breaks the link between the rental price and the equilibrium interest rate. Hence, the aggregate supply of rental property responds differently to the direction of rental price changes, marginal tax rate changes, and maintenance cost changes. We show that the model replicates the key factors and the distributional patterns of ownership, house size, and landlords. The degree of progressivity in the income tax code has important implications for housing tenure and housing consumption. We find that a movement toward a less progressive income tax code can generate sizable increases in homeownership and welfare that result from the equilibrium effects and a portfolio reallocation mechanism absent in economies with single assets (e.g., Conesa and Krueger 2006). We find that the removal of existing asymmetries in the tax code has effects on housing that differ from those reported in the literature. We show that housing policy can increase the ownership rate of a particular segment of the population but generate nontrivial distributional costs. The welfare increases are no larger than those found when the progressivity of the tax code is reduced.
    Date: 2008
  4. By: Grossmann, Volker; Strulik, Holger
    Abstract: Inheritance taxes may induce heirs to discontinue family firms. Because firm dissolution incurs transaction costs, a preferential tax treatment of transferred family businesses seems to be desirable from a macroeconomic viewpoint. The support of dynastic succession, however, entails also a cost on the economy if firm continuation by less able heirs prevents entry into entrepreneurship. Here, we investigate analytically and quantitatively the trade-off between transaction costs saved and creative destruction prevented. We find that a unique general equilibrium exists at which, depending on the institutional setup, low-ability heirs either abandon (Type 1) or continue (Type 2) a family business. A calibration of the model with German data suggests that preferential tax treatment of family firms has severe negative consequences on macroeconomic performance if it causes a threshold crossing from Type 1 to Type 2 equilibrium. It also reveals that the targeted persons, i.e. the entrepreneurs that are caused to continue a business, always lose relative to their status in an economy without continuation-friendly tax policy.
    Keywords: Bequest Taxation, Creative Destruction, Entrepreneurship, Family Firms, Preferential Tax Treatment.
    JEL: H25 L26 J24
    Date: 2008–02
  5. By: Jean-Yves Duclos; Bernard Fortin; Andrée-Anne Fournier
    Abstract: This article draws up a portrait of effective marginal tax rates (EMTRs) on labour income in Quebec. It aims at allowing a better understanding of the impact of tax policy on the behavior of economic agents. Using an accounting microsimulation model that reproduces the system of taxes and transfers in 2002 Quebec, we measure the EMTRs that result from the interaction of the mechanisms of income taxation and redistribution. Moreover, we evaluate the distribution of EMTRs in the population. The analysis of EMTRs shows, inter alia, that family policy, whose assistance is targeted towards low-income families, generates high levels of EMTRs ascribable to the generally fast reduction of transfers as income increases. More than a quarter of heads of single-parent households face an EMTR which can reach, and even exceed, 80%. As for the two-parent families, they mostly face EMTRs of around 50%. We show the importance of accounting for EMTR heterogeneity, both with respect to types of families and levels of incomes, as well as evaluating the variability of EMTRs in the population.
    Keywords: Effective tax rates, taxation, microsimulation, family policy
    JEL: D31 D63 H21 H24 I38
    Date: 2007
  6. By: Hanming Fang; Peter Norman
    Abstract: This paper studies the optimal provision mechanism for multiple excludable public goods when agents' valuations are private information. For a parametric class of problems with binary valuations, we demonstrate that the optimal mechanism involves bundling if a regularity condition, akin to a hazard rate condition, on the distribution of valuations is satisfied. Bundling alleviates the free riding problem in large economies in two ways: first, it may increase the asymptotic provision probability of socially efficient public goods from zero to one; second, it decreases the extent of use exclusions. If the regularity condition is violated, then the optimal solution replicates the separate provision outcome.
    JEL: H41
    Date: 2008–02
  7. By: Hanming Fang; Peter Norman
    Abstract: This paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals consume both public and private goods. The government's involvement in the provision of private goods provides it with information about individuals' private good purchases that facilitates more efficient revenue extraction for the provision of public goods. We show that public provision of the private good improves economic efficiency under a condition that is always fulfilled under stochastic independence and satisfied for an open set of joint distributions. Our model is an example where there is efficiency loss from separating revenue and expenditure problems in public finance, and is therefore of more general interest for the study of optimal taxation.
    JEL: D61 D82 H21 H42
    Date: 2008–02

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