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on Public Finance |
| By: | Bob Chirinko; Daniel J. Wilson |
| Abstract: | This paper provides an empirical analysis of the determination of capital tax policy by U.S. states based on new panel data, a new econometric technique, and a new theoretical model. The analysis is undertaken with a panel data set covering all 48 contiguous states for the period 1969 to 2004 and is guided by the theory of strategic tax competition. The latter suggests that capital tax policy is a function of out-of-state tax policy, in-state and out-of-state economic conditions, and, perhaps most importantly, preferences for government services. Using the Common Correlated Effects Pooled estimator to account for cross-section dependence, and time lags to account for delayed responses, we estimate this reaction function for three state capital tax instruments: the investment tax credit rate, the corporate income tax rate, and the state's capital weight in its multi-state income apportionment formula. We find the slope of the reaction function--i.e., the equilibrium response of in-state to out-of-state tax policy--is negative, contrary to many prior empirical results. We document that a positive slope is obtained when either aggregate time effects or time lags are omitted. We show that the positive slope found in misspecified models is the result of synchronous responses among states to common shocks rather than competitive responses to out-of-state tax policy. While striking given prior findings in the literature, these results are not surprising. The negative sign is fully consistent with qualitative and quantitative implications of the theoretical model developed in this paper. Rather than "racing to the bottom," our findings suggest that states are "riding on a seesaw." ; Formerly titled: Tax Competition and Capital Mobility: Evidence from the U.S. States |
| Keywords: | Taxation ; State finance |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-03&r=pub |
| By: | Cremer, Helmuth; De Donder, Philippe; Maldonado, Darío; Pestieau, Pierre |
| Abstract: | We consider a two-period model. In the first period, individuals consume two goods: one is sinful and the other is not. The sin good brings pleasure but has a detrimental effect on second period health and individuals tend to underestimate this effect. In the second period, individuals can devote part of their saving to improve their health status and thus compensate for the damage caused by their sinful consumption. We consider two alternative specifications concerning this second period health care decision: either individuals acknowledge that they have made a mistake in the first period out of myopia or ignorance, or they persist in ignoring the detrimental effect of their sinful consumption. We study the optimal linear taxes on sin good consumption, saving and health care expenditures for a paternalistic social planner. We compare those taxes in the two specifications. We show under which circumstances the first best outcome can be decentralized and we study the second best taxes when saving is unobservable. |
| Keywords: | behavioral economics; dual vs single self; paternalism |
| JEL: | H21 I18 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6777&r=pub |
| By: | Chiarini, Bruno (University of Naples, Parthenope); Marzano, Elisabetta (University of Naples, Parthenope); Schneider, Friedrich (University of Linz) |
| Abstract: | By using official time series of the Italian evaded VAT base (Ministry of Finance) for the period 1980-2004 we investigate empirically the long-run characteristics of tax evasion and the relationship with the tax burden. We focus on three important issues not analyzed so far. First, using different measures of aggregate economic activity as reference variables in estimating the average tax burden, we investigate the size and dynamics of the over-burden traceable back to tax evasion. Second, exploiting cointegration techniques, we quantify the elasticity between tax evasion and the average tax rate in Italy. We then comment on the complex dynamic interaction between tax burden and tax evasion, to ascertain whether in the Italian experience there is evidence for any “vicious circle” between them. |
| Keywords: | tax evasion, VAT evasion, effective tax rate, apparent tax rate, VECM |
| JEL: | H30 H26 O17 C32 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3447&r=pub |
| By: | Cremer, Helmuth; De Donder, Philippe; Maldonado, Darío; Pestieau, Pierre |
| Abstract: | This paper studies the design of a nonlinear social security scheme in a society where individuals differ in two respects: productivity and degree of myopia. Myopic individuals may not save 'enough' for their retirement because their 'myopic self' emerges when labor supply and savings decisions are made. The social welfare function is paternalistic: the rate of time preference of the far-sighted (which corresponds to the 'true' preferences of the myopics) is used for both types. We show that the paternalistic solution does not necessarily imply forced savings for the myopics. This is because paternalistic considerations are mitigated or even outweighed by incentive effects. Our numerical results suggest that as the number of myopic individuals increases, there is less redistribution and more forced saving. Furthermore, as the number of myopic increases, the desirability of social security (measured by the difference between social welfare with and without social security) increases. |
| Keywords: | dual self; myopia; paternalism |
| JEL: | D91 H55 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6775&r=pub |