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on Public Finance |
| By: | Wendner, Ronald; Goulder, Lawrence, H. |
| Abstract: | Most studies of the optimal provision of public goods or the excess burden from taxation assume that individual utility is independent of other individuals' consumption. This paper investigates public good provision and excess burden in a model that allows for interdependence in consumption in the form of status (relative consumption) effects. In the presence of such effects, consumption and labor taxes no longer are pure distortionary taxes but have a corrective tax element that addresses an externality from consumption. As a result, the marginal excess burden of consumption taxes is lower than in the absence of status effects, and will be negative if the consumption tax rate is below the "Pigouvian" rate. Correspondingly, when consumption or labor tax rates are below the Pigouvian rate, the second-best level of public goods provision is above the first-best level, contrary to findings from models without status effects. For plausible functional forms and parameters relating to status effects, the marginal excess burden from existing U.S. labor taxes is substantially lower than in most prior studies, and is negative in some cases. |
| Keywords: | status effects; excess burden; deadweight loss; public goods provision; corrective taxation; consumption externality; first best; second best |
| JEL: | D62 H41 H23 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8260&r=pub |
| By: | Kind, Hans Jarle (Department of Economics, Norwegian School of Economics and Business Administration (NHH)); Koethenbuerger, Marko (Center for Economic Studies, Ludwig-Maximilians-Universität); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration) |
| Abstract: | This paper examines the efficient provision of goods in two-sided markets and characterizes optimal specific and ad-valorem taxes. We show that (i) a monopoly may have too high output compared to the social optimum; (ii) output may be reduced by imposing negative value-added taxes (subsidy) or positive specific taxes. |
| Keywords: | Market Structure and Pricing; Efficiency; Optimal Taxation; Incidence |
| JEL: | D40 D43 H21 H22 L13 |
| Date: | 2008–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2008_001&r=pub |
| By: | Toshihiro Ihori (Faculty of Economics, University of Tokyo) |
| Abstract: | This paper investigates how the soft budget constraint with grants from the central government to local governments tends to internalize the vertical externality by stimulating insufficient local expenditure when both the central and local governments impose taxes on the same economic activities from public investment. The theoretical model incorporates local governments' rent-seeking activities in a multi-government setting with and without central controls on local borrowing. Two channels through debt issuance and public investment cause the soft budget outcome. In the unrestricted scheme of local debt issuance we have the positive effect on public investment and debt issuance although it would also stimulate wasteful rent seeking activities. In the restricted scheme of local debt issuance the soft budget case may not stimulate public investment since its effect through debt issuance is absent. In either case the soft budget constraint is welfare improving if the marginal valuation of central public goods is relatively small and/or the tax share of local government is relatively small. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2008cf552&r=pub |
| By: | Haufler, Andreas (Department of Economics, University of Munich); Klemm, Alexander (Fiscal Affairs Dept., International Monetary Fund (IMF)); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration) |
| Abstract: | Increased activity of multinational firms exposes national corporate tax bases to cross-country profit shifting, but also leads to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple political economy model where the median voter decides on a redistributive income tax rate. In this setting economic integration may raise or lower the equilibrium tax rate, and it is more likely to raise the tax rate of a low-tax country. The implications of the model are consistent with the empirical observations that effective corporate tax rates have not fallen in all OECD countries, and that corporate tax revenues have generally risen. |
| Keywords: | Redistributive taxation; profit shifting |
| JEL: | F23 H20 |
| Date: | 2008–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2008_004&r=pub |
| By: | Antonio Zabalza (University of Valencia, Spain) |
| Abstract: | This paper shows that actual systems of intergovernmental transfers are incompletely specified when viewed as mechanisms that operate over time, and that the norms of evolution most frequently used do not preserve the distributive properties they have at their initial position. We argue that this problem is solved if these systems are completed with a dynamic condition of vertical equity based on the same economic premises that underlie their static specification. This gives rise to a new norm of evolution that over time preserves both Horizontal Equity and Vertical Equity: the HEAVE norm. |
| Keywords: | Intergovernmental transfers, dynamic horizontal and vertical equity |
| JEL: | H7 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:iei:wpaper:0801&r=pub |