nep-pub New Economics Papers
on Public Finance
Issue of 2008‒04‒12
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation, Aggregates and the Household By Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
  2. Evidence on the Insurance Effect of Marginal Income Taxes By Grant, Charles; Koulovatianos, Christos; Michaelides, Alexander; Padula, Mario
  3. Marginal Tax Reform, Externalities and Income Distribution By Inge Mayeres; Stef Proost
  4. Love and Taxes - and Matching Institutions By Konrad, Kai A; Lommerud, Kjell Erik
  5. A "Double Dividend", After All? By K.J. Munk
  6. Would a Flat Tax Stimulate Entrepreneurship in Germany? : A Behavioural Microsimulation Analysis Allowing for Risk By Frank M. Fossen
  7. Ricardian Equivalence: an Empirical Application to the Portugese Economy. By Carlos Fonseca Marinheiro

  1. By: Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
    Abstract: We evaluate reforms to the U.S. tax system in a dynamic setup with heterogeneous married and single households, and with an operative extensive margin in labour supply. We restrict our model with observations on gender and skill premia, labour force participation of married females across skill groups, and the structure of marital sorting. We study four revenue-neutral tax reforms: a proportional consumption tax, a proportional income tax, a progressive consumption tax, and a reform in which married individuals file taxes separately. Our findings indicate that tax reforms are accompanied by large and differential effects on labour supply: while hours per-worker display small increases, total hours and female labour force participation increase substantially. Married females account for more than 50% of the changes in hours associated to reforms, and their importance increases sharply for values of the intertemporal labour supply elasticity on the low side of empirical estimates. Tax reforms in a standard version of the model result in output gains that are up to 15% lower than in our benchmark economy.
    Keywords: labour force participation; taxation; two-earner households
    JEL: E62 H31 J12 J22
    Date: 2008–02
  2. By: Grant, Charles; Koulovatianos, Christos; Michaelides, Alexander; Padula, Mario
    Abstract: Marginal income taxes may have an insurance effect by decreasing the effective fluctuations of after-tax individual income. By compressing the idiosyncratic component of personal income fluctuations, higher marginal taxes should be negatively correlated with the dispersion of consumption across households, a necessary implication of an insurance effect of taxation. Our study empirically examines this negative correlation, exploiting the ample variation of state taxes across US states. We show that taxes are negatively correlated with the consumption dispersion of the within-state distribution of non-durable consumption and that this correlation is robust.
    Keywords: Consumption Insurance; Tax Distortions; Undiversifiable Earnings Risk
    JEL: E21 H20 H31
    Date: 2008–02
  3. By: Inge Mayeres; Stef Proost
    Abstract: The paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods. It considers three types of policy instruments: the indirect taxes, the uniform poll transfer and public abatement. This extends the framework set up by Ahmad and Stern (1984), Bovenberg and de Mooij (1994) and Schöb (1996). The theoretical model is illustrated for a specific externality, namely congestion caused by peak car transport.
    Date: 2008–03
  4. By: Konrad, Kai A; Lommerud, Kjell Erik
    Abstract: We study a setting with search frictions in the marriage market and with incomplete contracting inside the family. Everyone prefers a partner that has a high income and is a perfect emotional match, but compromises must often be struck. A high-income earner may abstain from marrying a low-income earner even though they would be a perfect match emotionally, because he may dislike the implicit income redistribution implied by marriage. Redistributive income taxation may ease this problem. Income matching institutions that secure that people from the same income groups largely meet each other can substitute for redistribution, so that optimal redistribution is reduced. We also introduce a divorce option. Redistributive taxation is shown both to further and stabilize marriage.
    Keywords: assortative mating; divorce; emotional rents; incomplete contracts; love; marriage; optimal taxation
    JEL: D61 H21 J12
    Date: 2008–02
  5. By: K.J. Munk
    Abstract: The consensus view among economists seems to be that a green tax reform is unlikely to be associated with a "double dividend" (Bovenberg 1998). However, the results derived in the present paper suggest that this view needs to be qualified. We demonstrate that a green tax reform is likely to be associated with a significant "double dividend" if the government prior to taking the environmental aspect into account has adopted a proportional tax structure due to the administrative costs involved in differentiating commodity tax rates, and if the green tax reform stimulates the labour supply and has desirable income distributional effects.
    Keywords: Optimal taxation, externalities, administrative costs, green tax reform, double dividend
    JEL: H2 H29
    Date: 2008–03
  6. By: Frank M. Fossen
    Abstract: When possible income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour or against a certain policy. Quantitative ex-ante evaluations of the effect of certain tax reform options on entrepreneurship based on microeconometric research have not been provided by the literature, however. This paper estimates the ex-ante effects of the German tax reform 2000 and of two hypothetical flat tax scenarios on entries into and exits out of self-employment in Germany. For the estimation I apply a microsimulation model which is based on the tax-benefit model STSM and on structural microeconometric models of transitions into and out of self-employment. These structural models include an estimated parameter of risk aversion. The simulation results indicate that flatter tax systems do not encourage, but rather discourage people from choosing self-employment. This is explained by the reduction of entrepreneurs' income risk through progressive taxation.
    Keywords: Entrepreneurship, income taxation, risk, tax reform 2000, flat tax
    JEL: H24 J23 L26 D81
    Date: 2008
  7. By: Carlos Fonseca Marinheiro
    Abstract: It is the purpose of this paper to focus on the consequences of the Ricardian offset to the conduct of stabilising fiscal policies. If equivalence prevails there is no scope for effective stabilising fiscal policies. A review of the theoretical requirements of Ricardian equivalence reveals that they are not likely to be fulfilled in practice. However, the brief survey of the empirical applications shows that the published empirical evidence is inconclusive. An empirical application for the Portuguese economy is carried out. The tests are based on reduced-form consumption functions and on the Euler equation approach. The overall results are ambiguous.
    Date: 2008–03

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