nep-pub New Economics Papers
on Public Finance
Issue of 2008‒07‒05
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Investable Tax Credits: The Case of the Low Income Housing Tax Credit By Mihir A. Desai; Dhammika Dharmapala; Monica Singhal
  2. Firm-specific Forward-looking Effective Tax Rates By Peter Egger; Simon Loretz; Michael Pfaffermayr; Hannes Winner
  3. The US earned income tax credit, its effects, and possible reforms By Meyer, Bruce D.
  4. U.S. Defense Contracts During the Tax Expenditure Battles of the 1980s By Susan Guthrie; James R. Hines, Jr.
  5. Monetization of Public Goods Provision: A possible solution for the free-rider problem By KOBAYASHI Keiichiro; NAKAJIMA Tomoyuki

  1. By: Mihir A. Desai; Dhammika Dharmapala; Monica Singhal
    Abstract: The Low Income Housing Tax Credit (LIHTC) represents a novel tax expenditure program that employs "investable" tax credits to spur production of low-income rental housing. While it has grown into the largest source of new affordable housing in the U.S. and its structure is now being replicated in other programs, the LIHTC has also drawn skepticism and calls for its repeal. This paper outlines a conceptual framework for exploring the conditions under which investable tax credits may be the most effective mechanism to deliver a production subsidy and discusses the desirability of employing investable tax credits in other policy domains. Estimates of tax expenditures under this program are provided and efficiency costs, distributional issues, and the likely effects of reforms to tax provisions such as the AMT are considered.
    JEL: H2 H76 R31 R51
    Date: 2008–06
  2. By: Peter Egger (Ifo Institute and University of Munich); Simon Loretz (Oxford University Centre for Business Taxation); Michael Pfaffermayr (Department of Economics and Statistics, University of Innsbruck); Hannes Winner (Department of Economics and Statistics, University of Innsbruck)
    Abstract: This paper computes (marginal and average) forward-looking effective tax rates for a sample of more than 550,000 firms in and outside of Europe using Bureau van Dijk's ORBIS data-base. Comparing the firm-level effective tax rates with their country-level counterparts we arrive at two important findings for empirical research on the behavioral response to taxation. First, the firm-level component of the effective tax burden is generally much more important than the one at the country level. Second, tentative empirical results on the nexus between firm sales and corporate taxation illustrate that the conclusions obtained with forward looking firm- level effective tax rates differ starkly from those based on country-level forward-looking rates or backward-looking effective tax rates at the firm level.
    Keywords: Corporate taxation; effective tax rates; firm sales
    JEL: H25 C33
    Date: 2008
  3. By: Meyer, Bruce D. (Harris School of Public Policy Studies, University of Chicago)
    Abstract: In this paper, I first summarize how the US Earned Income Tax Credit (EITC) operates and describe the characteristics of recipients. I then discuss empirical work on the effects of the EITC on poverty and income distribution, and its effects on labor supply. Next, I discuss a few policy concerns about the EITC: possible negative effects on hours of work and marriage, and problems of compliance with the tax system. I then briefly discuss some possible reforms to the structure of the current EITC.
    Keywords: Welfare reform; Earned income tax credit; EITC; Earnings subsidies; Tax credits; Poverty
    JEL: D31 H24 I38 J38
    Date: 2008–05–17
  4. By: Susan Guthrie; James R. Hines, Jr.
    Abstract: This paper considers the impact of the tax treatment of U.S. military contractors. Prior to the early 1980s, taxpayers were permitted to use the completed contract method of accounting to defer taxation of profits earned on long term contracts. Legislation passed in 1982, 1986 and 1987 required that at least 70 percent of the profits earned on long-term contracts be taxed as accrued, thereby significantly reducing the tax benefits associated with long term contracting. Comparing contracts that were ineligible for the tax benefits associated with long term contracting with those that were eligible, it appears that between 1981 and 1989 the duration of U.S. Department of Defense contracts shortened by an average of between one and 3.5 months, or somewhere between 6 and 29 percent of average contract length. This pattern suggests that the tax benefits associated with long term contracts promoted artificial contract lengthening prior to passage of the 1986 Act. The evidence is consistent with a behavioral model in which the Department of Defense ignores the federal income tax consequences of its procurement actions, thereby indirectly rewarding contractors who are able to benefit from tax expenditures of various types.
    JEL: H25 H57
    Date: 2008–06
  5. By: KOBAYASHI Keiichiro; NAKAJIMA Tomoyuki
    Abstract: We consider a new method of public goods provision: monetization. The government makes a particular public good the specie of money and commits itself to buy the public good at a predetermined nominal price and adjust money supply so that the ratio between the public good reserve and money supply equals a predetermined reserve ratio. In a two-country model, in which one country issues international currency and the other issues domestic currency, we show that if the government that issues the international currency adopts a monetization policy, it can attain both the optimal level of public goods provision and equal cost sharing for the public goods provision between the two countries by choosing the nominal price of the public good and the reserve ratio appropriately. In this case, the international free-rider problem is completely resolved.
    Date: 2008–06

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