nep-pub New Economics Papers
on Public Finance
Issue of 2008‒08‒31
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Policy Design and the Role of a Tax-Free Threshold By John Creedy; Nicolas Hérault; Guyonne Kalb
  2. Tax evasion and deductible expenses By Piolatto, Amedeo
  3. Envy Minimization in the Optimal Tax Context By Yukihiro Nishimura
  4. Tax challenges facing developing countries. By Bird, Richard M.
  5. Tax Reform for Efficiency and Fairness in Canada By Alexandra Bibbee

  1. By: John Creedy (Department of Economics, The University of Melbourne); Nicolas Hérault (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Guyonne Kalb (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper examines the role of the tax-free income tax threshold in a complex tax and transfer system consisting of a range of taxes and benefits, each with their own taper rates and thresholds. Considering a range of tax and benefit systems, particularly those having benefit taper rates whereby some benefits are received by income groups other than those at the bottom of the distribution, it is suggested that a tax-free threshold is not a necessary requirement to achieve redistribution. A policy change involving the elimination of the taxfree threshold in Australia and designed to achieve approximate revenue neutrality is examined using the Melbourne Institute Tax and Transfer Simulator. The results demonstrate that it is possible to eliminate the tax-free threshold under approximate overall revenue and distribution neutrality, but that labour supply incentives cannot be improved at the same time.
    Date: 2008–08
  2. By: Piolatto, Amedeo
    Abstract: Public finance is strongly affected by tax evasion, which implies that public sector resources are very limited. Most of the analysis on how to fight tax evasion focused on the ways to deter evasion through incentives to people not to evade. This model has a different approach: instead of directly rewarding/punishing agents, it gives incentives to an agent to ensure that some other agents are obliged to declare their revenue. In particular, the idea is to give incentives to consumers (through itemised deductions) to declare their expenditure. This forces sellers to declare their earnings or, at least, it makes it more costly for them to convince buyers to buy on the black market. I show that under few conditions, for a given level of taxation, it is optimal to allow for partial itemised deductions.
    Keywords: direct taxes; tax evasion; deductions
    JEL: H30 H00 H26
    Date: 2008–05
  3. By: Yukihiro Nishimura (Yokohama National University and Queen's University)
    Abstract: This paper examines the second-best tax policy to minimize envy in the sense of Chaudhuri (1986) and Diamantaras and Thomson (1990). An allocation is $\lambda$-equitable if no agent prefers a proportion $\lambda$ of any other agent's bundle. We study the allocations that maximize $\lambda$ among the second-best Pareto efficient allocations. In the standard two-class economy with identical preferences, the Chaudhuri-Diamantaras-Thomson allocation coincides with the leximin allocation. In many-agent economies, it is possible to order the class of second-best Pareto efficient allocations graded by progressivity in the sense of Hemming and Keen (1983), with respect to the intensity of envy. Envy is then minimized in the most progressive tax system.
    Keywords: Income Taxation, Envy
    JEL: D63 H21
    Date: 2008–08
  4. By: Bird, Richard M. (National Institute of Public Finance and Policy)
    Date: 2008–03
  5. By: Alexandra Bibbee
    Abstract: The Canadian government has set a high priority on reducing the economic burden of taxation. In a context of fiscal surpluses, it has been: markedly reducing corporate income and capital taxes; providing more personal tax relief especially at lower incomes and above all for saving; and cutting the federal value added tax (GST). While such measures, in particular income and capital tax cuts, reduce the economic damage caused by tax, Canada should go further along this route with significant revenue-neutral reforms to achieve a more efficient tax mix that also retains its redistributive features. Numerous tax preferences to favoured activities, firm types, investments and savings vehicles narrow the tax base and create loopholes, keeping statutory rates higher than otherwise and distorting resource allocation. They should therefore be removed. It would also help to shift the tax mix toward more user fees and indirect taxes – including VAT, environmental levies and property taxes – which do not distort inter-temporal economic choices as income taxes do. Lower corporate and personal income taxes could improve the incentives for capital formation, FDI, innovation, entrepreneurship, labour-force participation, work effort, and the pursuit of higher education. The result would be higher standards of living. <P>Réforme fiscale au Canada pour plus d’efficience et d’équité <BR>Le gouvernement canadien s’est fixé pour priorité d’alléger la charge fiscale qui pèse sur l’économie. Dans un contexte d’excédents budgétaires, cette stratégie s’articule autour des objectifs suivants : réduire de manière significative l’impôt sur les sociétés et les impôts sur le capital ; multiplier les allégements fiscaux en faveur des particuliers, surtout ceux à bas revenus ; et abaisser la taxe fédérale sur les produits et services (TPS). Même si ces mesures, et notamment les baisses de l’impôt sur le revenu et sur le capital, atténuent les préjudices économiques causés par l’impôt, le Canada devrait aller plus loin dans cette direction en engageant de vastes réformes sans incidence sur les recettes visant à établir une structure fiscale plus efficiente qui conserve ses fonctions redistributives. De nombreux avantages fiscaux qui favorisent certains types d’activités, d’entreprises, de produits d’investissement et d’épargne restreignent l’assiette d’imposition et créent des failles, ce qui maintient les taux légaux à un niveau inutilement élevé et fausse la répartition des ressources. Ils devraient donc être supprimés. Il serait également judicieux de rééquilibrer la structure fiscale en faveur des droits d’utilisation et des impôts indirects – y compris la TVA, les impôts liés à l’environnement et les impôts fonciers – qui ne faussent pas les choix économiques intertemporels, contrairement aux impôts sur le revenu. Une baisse de l’imposition des ménages et des sociétés pourrait encourager la formation de capital, l’IDE, l’innovation, l’entrepreneuriat, la participation à l’activité économique, le travail et la poursuite d’études supérieures, améliorant ainsi le niveau de vie.
    Keywords: taxation, Canada, Canada, dépense fiscale, taxe à la consommation, taxation, personal income tax, progressivité de l’impôt, impôt sur les corporations, impôt sur les particuliers
    JEL: E62 H2 H77
    Date: 2008–08–12
  6. By: Yolande Van Heerden (Department of Economics, University of Pretoria); Niek J. Schoeman (Department of Economics, University of Pretoria)
    Abstract: The optimum level of government intervention in the economy has been researched extensively internationally but not in South Africa. This paper is primarily concerned with assessing the optimum size of government in terms of revenue and expenditure for South Africa, in order to maximize economic growth, using time series data for the period 1960 to 2006. The results indicate that the actual average tax burden far exceeds its optimum level and that the authorities will have to adjust tax policy accordingly in order to improve on the level of economic growth. The optimum level of taxation is estimated within a balanced budget scenario.
    Date: 2008–08

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