nep-pub New Economics Papers
on Public Finance
Issue of 2008‒09‒20
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Measuring Tax Incidence: A Natural Experiment in the Hybrid Vehicle Market By Melissa Boyle; Victor Matheson
  2. Redistributive Taxation, Inequality, and Intergenerational Mobility By Schneider, Andrea
  3. Why Tax Capital? By Junsang Lee; Yili Chien
  4. Optimal Capital Taxation Under Limited Commitment By Junsang Lee; Yili Chien
  5. The Social Multiplier of Tax Evasion: Evidence from Italian Audit Data By Roberto Galbiati; Giulio Zanella

  1. By: Melissa Boyle (Department of Economics, College of the Holy Cross); Victor Matheson (Department of Economics, College of the Holy Cross)
    Abstract: This study measures the economic incidence of the hybrid vehicle tax credit implemented in the Energy Policy Act of 2005. By comparing hybrids to gasoline-powered counterparts as the credit is phased out and expires, we are able to isolate the impact of the credit on the market price of hybrid vehicles. We conclude that hybrid prices increase by $0.75 on average for every additional dollar of credit. Thus, the majority of the subsidy accrues to manufacturers, potentially encouraging producers to increase the variety and availability of hybrid models on the market.
    Keywords: Automobiles, tax incidence, hybrids, taxation
    JEL: H22 L62 Q48 Q53
    Date: 2008–09
  2. By: Schneider, Andrea (Helmut Schmidt University, Hamburg)
    Abstract: Education decisions determine a great part of future income. This paper argues that if education is financed by parents' current income a lump-sum tax reduces inequality if all parents have strict investment incentives. However, if some parents are indifferent there is a possible decrease in the wage gap via a contrary indirect tax effect which drops the returns of schooling. Under strict incentives social mobility is not affected, but it increases if skilled parents have weak incentives and decreases if unskilled parents are indifferent in their investment decision.
    Keywords: Intergenerational mobility; Inequality; Redistribution; Lump- sum tax
    JEL: D31 D91 H23 H31 I21 J24 J62
    Date: 2007–10
  3. By: Junsang Lee; Yili Chien
    Abstract: We study optimal capital income taxation with a Ramsey problem and relate this optimal taxation problem to the question that has been asked in the asset pricing literature, which is why the risk free interest rate is too low. We show that the Ramsey planner chooses the optimal level of capital stock to be one that satisfies the modified golden rule in the steady state under some conditions. The conditions include suffcient government tax instruments and ability to issue bonds. We argue that the optimal capital level is different from that chosen in a competitive equilibrium unless the competitive equilibrium risk free interest rate is same as the time discount rate in the steady state. This difference in the choice of capital motivates imposing a positive capital income tax (or subsidy) on households to induce them to invest at the socially optimal amount. As examples, we investigate optimal capital taxation in a decentralized economy with limited commitment and one with private information. However, the result still holds in various types of economies with risk free interest rate that is too low.
    JEL: D86 E23 E44 E62
    Date: 2008–06
  4. By: Junsang Lee; Yili Chien
    Abstract: We study optimal capital taxation under limited commitment. We prove that the optimal tax rate on capital income should be positive in steady state provided that full risk-sharing is not feasible. In a limited commitment environment, a one unit increase of capital investment by an agent increases all individuals' autarky values in the economy and generates externality costs in the economy. This externality cost provides a rationale for positive capital taxation even in the absence of government expenditure. Moreover, we show that both this externality cost of capital investment and the optimal tax rate are potentially much bigger than one might expect.
    Date: 2008–08
  5. By: Roberto Galbiati; Giulio Zanella
    Abstract: We investigate the role of individual interdependencies in tax evasion, arising from congestion on the auditing resources available to local tax authorities. Identification exploits a novel method based on comparison of the variance of individual behavior — concealed income in this case — at different levels of aggregation, within different subpopulations (Graham, 2008). This method allows us to mitigate some of the most severe problems that surround identification of neighbourhood effects, at the cost of identifying restrictions that arise naturally from our model. We employ a unique dataset of tax audits to about 75,000 self-employed individuals in Italy. Surprisingly, this sample is not statistically different from a random sample of taxpayers. We find a social multiplier of about 3, meaning that the equilibrium response to a shock that induces an exogenous variation in mean concealed income — such as tougher or looser tax enforcement — is about three times the initial average response
    Keywords: social interactions, social multiplier, tax evasion, tax compliance, excess variance
    JEL: H26 C31 Z13 Z19
    Date: 2008–08

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