nep-pub New Economics Papers
on Public Finance
Issue of 2008‒05‒05
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation According to Equality of Opportunity: A Microeconometric Simulation Analysis By Rolf Aaberge; Ugo Colombino; John E. Roemer
  2. Tax Challenges Facing Developing Countries By Richard Bird
  3. Coming Closer? Tax Morale, Deterrence and Social Learning after German Unification By Lars P. Feld; Benno Torgler; Bin Dong

  1. By: Rolf Aaberge; Ugo Colombino; John E. Roemer
    Abstract: The purpose of this paper is to introduce and adopt a generalised version of Roemer's (1998) Equality of Opportunity (EOp) framework, which we call extended EOp, for analysing second-best optimal income taxation. Unlike the pure EOp criterion of Roemer (1998) the extended EOp criterion allows for alternative weighting profiles in the treatment of income differentials between and within types when types are defined by (observable) circumstances that are beyond people's control. An empirical microeconometric model of labour supply in Italy is used to simulate and identify income tax-transfer rules that are optimal according to the extended EOp criterion. The tax-transfer rules are only allowed to depend on income, i.e. we look for second-best optimality. The rules are defined by a universal lump-sum transfer (positive or negative) and by one or two marginal tax rates. A rather striking result of the analysis is that the optimal tax-transfer rule turns out to be a universal lump-sum tax (with marginal tax rates equal to zero), under Roemer's pure EOp criterion as well as under the generalised EOp criterion with moderate degrees of aversion to within-type inequality. A high degree of withintype inequality aversion instead produces EOp-optimal rules with positive marginal tax rates. When the EOp-version of the Gini welfare function is adopted, the optimal tax rule turns out to be close to the actual 1993 Italian tax system, if not for the important difference of prescribing a universal lumpsum positive transfer of 3,500,000 ITL, which has no comparable counterpart in the actual system. On the other hand, when using the conventional equality of outcome (EO) criterion, the pure lump-sum tax always turns out to be optimal, at least with respect to the classes of two- and three-parameter rules. We also compute optimal rules under the additional constraint that universal lump-sum taxes are not feasible. Overall, the results suggest, somehow surprisingly, that the extended EOp approach would demand more redistribution than the EO approach.
    Keywords: Equality of opportunity, equality of outcome, labour supply, optimal income taxation
    JEL: D19 D63 H21 H24 H31
    Date: 2008–04
  2. By: Richard Bird (University of Toronto)
    JEL: O23 H20
    Date: 2008–03
  3. By: Lars P. Feld; Benno Torgler; Bin Dong
    Abstract: The paper explores whether a social learning model helps explain the observed conformity and compliance with social norms after the unification of Germany. We compare tax morale, (the willingness to pay taxes), between inhabitants of East and West Germany during the post-unification period, using three World Values Survey/European Values Survey waves between 1990 and 1999. German unification is of particular interest in analyzing tax morale since it is close to a quasi-natural experiment. Factors such as a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War can be controlled because they are similar. Our findings indicate that the social learning model employed in this study helps to predict the development of tax morale over time. It is clear that tax morale values converged within a mere nine years after unification, due largely to a strong change in the level of tax morale in the East. Thus, the paper contributes to the literature that attempts to explain how norms arise, how they are maintained and how they are changed.
    Keywords: Tax Morale; Social Learning; Conformity; Convergence Process; Deterrence; Quasi-Natural Experiment
    JEL: H26 H73 D78 C93
    Date: 2008–04

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