nep-pub New Economics Papers
on Public Finance
Issue of 2008‒10‒13
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxing Leisure Complements By Louis Kaplow
  2. Optimal linear taxation under endogenous longevity By Marie-Louise Leroux; Pierre Pestieau; Grégory Ponthière
  3. Optimal tax policy and expected longevity: A mean and variance utility approach By Marie-Louise Leroux; Grégory Ponthière
  4. On Estimating Marginal Tax Rates and Tax Progressivities for U.S. States By W. Robert Reed; Cynthia L. Rogers; Mark Skidmore
  5. Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives By Paulus, Alari; Peichl, Andreas
  6. Do Corporate Taxes Reduce Productivity and Investment at the Firm Level?: Cross-country Evidence from the Amadeus Dataset By Cyrille Schwellnus; Jens Arnold
  7. Corporate Tax Elasticities A Reader’s Guide to Empirical Findings By Ruud A. de Mooij; Sjef Ederveen
  8. Corporate Income Taxation in Canada By George R. Zodrow
  9. The European Commission´s Proposal for a Common Consolidated Corporate Tax Base By Clemens Fuest

  1. By: Louis Kaplow
    Abstract: Ever since Corlett and Hague (1953), it has been understood that it tends to be optimal on second-best grounds to (relatively) tax complements to leisure and subsidize substitutes because doing so helps to offset the distorting effect of taxation on labor supply. Yet in the context of simultaneous optimization of a nonlinear income tax and commodity taxes, Atkinson and Stiglitz (1976) claim to have demonstrated the opposite, that goods complementary with leisure should "face lower tax rates, whereas substitutes face higher tax rates." Derivations in leading texts on optimal taxation seem to yield opposing conclusions regarding the sign of optimal deviation of commodity taxes from uniformity. It is demonstrated that the optimality of relatively taxing leisure complements is indeed correct, and conflicting results are explained.
    JEL: H21 H24
    Date: 2008–10
  2. By: Marie-Louise Leroux; Pierre Pestieau; Grégory Ponthière
    Abstract: This paper studies the optimal linear tax-transfer policy in an economy where agents differ in productivity and in genetic background, and where longevity depends on health spending and genes. It is shown that, if agents internalize imperfectly the impact of genes and health spending on longevity, the utilitarian social optimum can be decentralized with type-specific redistributive lump sum transfers and Pigouvian taxes correcting for agents' myopia (leading to undersaving and underinvestment in health), and for their incapacity to perceive the effect of health spending on the resource constraint of the economy (causing overinvestment in health). The second-best problem is also examined under linear taxation instruments. Our main result is that it may be optimal to tax health spending, in particular under a complementarity of genes and health spending in the production of longevity.
    Date: 2008
  3. By: Marie-Louise Leroux; Grégory Ponthière
    Abstract: This paper studies the normative problem of redistribution between agents who can infuence their survival probability through private health spending, but who differ in their attitude towards the risks involved in the lotteries of life to be chosen. For that purpose, a two-period model is developed, where agents' preferences on lotteries of life can be represented by a mean and variance utility function allowing, unlike the expected utility form, some sensitivity to what Allais (1953) calls the dispersion of psychological values. It is shown that if agents ignore the impact of their health spending on the return of their savings, the decentralization of the first-best utilitarian optimum requires intergroup lump-sum transfers and group-specifc taxes on health spending. Under asymmetric information, we find that subsidizing health expenditures may be optimal as a way to solve the incentive problem.
    Date: 2008
  4. By: W. Robert Reed (University of Canterbury); Cynthia L. Rogers; Mark Skidmore
    Abstract: This research presents a simple procedure for improving state-specific estimates of marginal tax rates (MTR’s). Most research employing MTR’s follows a procedure developed by Koester and Kormendi (K&K, 1987). Unfortunately, the time-invariant nature of the K&K estimates precludes their use as explanatory variables in panel data studies. Furthermore, their estimates are not based on statutory tax parameters. In contrast, our procedure produces timevarying estimates of MTR’s that are directly related to observed changes in statutory tax parameters. Using comprehensive data on state tax policy parameters, our procedure produces state-specific MTR’s estimates for all 50 states over the years 1977-2004. We compare our refined MTR’s to alternative estimates and evaluate implications for estimating tax progressivity for US states.
    Keywords: State tax revenues; Marginal tax rates; Tax burden; Tax progressivity; Economic growth.
    JEL: H71 H24 H25
    Date: 2008–08–08
  5. By: Paulus, Alari (ISER, University of Essex); Peichl, Andreas (IZA)
    Abstract: The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.
    Keywords: flat tax reform, income distribution, work incentives, microsimulation
    JEL: C81 D31 H24
    Date: 2008–09
  6. By: Cyrille Schwellnus; Jens Arnold
    Abstract: This paper uses a stratified sample of firms across OECD economies over the period 1996-2004 to analyse the effects of corporate taxes on productivity and investment. Applying a differences-in-differences estimation strategy which exploits differential effects of corporate taxes on firms with different profitability, it is found that corporate taxes have a negative effect on productivity at the firm level. The effect is negative across firms of different size and age classes except for the small and young, which may be attributable to the relatively low profitability of small and young firms. The negative effect of corporate taxes is particularly pronounced for firms that are catching up with the technological frontier. In the investment analysis, the results suggest that corporate taxes reduce investment through an increase in the user cost of capital. This may partly explain the negative productivity effects of corporate taxes if new capital goods embody technological change. <P>Les impôts sur le revenu des sociétés réduisent-ils la productivité et l’investissement des firmes? <BR>Ce papier utilise un échantillon stratifié de firmes issues des pays de l’OCDE sur la période 1996-2004 pour analyser les effets de l’imposition des sociétés sur la productivité et l’investissement. En appliquant une stratégie d’estimation par différences-en-différences qui exploite des effets différentiels de l’imposition sur des firmes avec de différents niveaux de profitabilité, il s’avère que les impôts sur le revenu des sociétés ont un effet négatif sur la productivité des firmes. L’effet est négatif pour les firmes de toutes classes d’emploi et d’âge excepte pour les firmes à la fois petites et jeunes, ce qui peut être attribuable à la profitabilité relativement faible des firmes à la fois petites et jeunes. L’effet négatif de l’imposition est particulièrement fort pour les firmes qui sont en train de s’approcher à la frontière technologique. L’analyse de l’investissement indique que l’imposition des sociétés réduit l’investissement par une augmentation du coût du capital. Ceci expliquerait une partie des effets négatifs sur la productivité si les nouveaux biens de capital incorporent le progrès technologique.
    JEL: D21 D24 E22 E62 H25 H32
    Date: 2008–09–30
  7. By: Ruud A. de Mooij (Erasmus University Rotterdam, CPB, CESifo, Tinbergen Institute, Oxford University Centre for Business Taxation); Sjef Ederveen (Ministry of Economic Affairs, the Netherlands)
    Abstract: Corporate taxes exert a variety of effects on business behaviour. A wealth of empirical evidence assesses the magnitude of these behavioural margins of taxation. This article offers an up-to-date review and aims to provide common ground by computing for each distortion the semi-elasticity of the corporate tax base. We pay particular attention to international investment where it is not a priory clear whether marginal investment decisions or discrete locations are most important. Using an extension of the meta analysis of De Mooij and Ederveen (2003), we explore the extent to which existing studies reveal differences in effect size between the intensive and extensive margins of international investment.
    JEL: F2 H25
    Date: 2008
  8. By: George R. Zodrow (Rice University, Oxford University Centre for Business Taxation)
    Abstract: This paper examines Canadian corporate income tax policy, focusing on the implications of international capital mobility, international tax competition – including the need for a corporate tax structure that is competitive with respect to the United States and other competing economies – and international tax avoidance. The paper begins by considering the arguments for tax exemption or even subsidization of capital income, and then examines the many qualifications to these arguments. This analysis pays particular attention to the implications of the existence of firm-specific and location-specific economic rents and the issues raised by new techniques for international tax avoidance. In all cases, the discussion of theoretical arguments is followed by an examination of the empirical evidence, including studies specific to Canada as available. The paper then traces out the implications of the analysis for corporate income tax policy in Canada, including the recently enacted corporate income tax rate reductions and other potential reforms.
    Keywords: Canadian corporate income tax, business tax reform, international tax competition, international tax avoidance, international capital mobility
    JEL: H20 H25
    Date: 2008
  9. By: Clemens Fuest (Oxford University Centre for Business Taxation)
    Abstract: The European Commission currently prepares a proposal for a directive on the introduction of a Common Consolidated Corporate Tax Base (CCCTB). This paper reviews the current state of the European Commission´s preparation of the CCCTB proposal and discusses the implications for efficiency and fairness of the tax system. The analysis concludes that more evidence of significant economic benefits from introducing a CCCTB would be required to generate widespread support for the project.
    Keywords: Corporate Taxation; European Commission, CCCTB
    JEL: H25
    Date: 2008

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