nep-pub New Economics Papers
on Public Finance
Issue of 2008‒12‒14
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Capital Structure, Corporate Taxation and Firm Age By Michael Pfaffermayr; Matthias Stöckl; Hannes Winner
  2. Can We Tax the Desire for Tax Evasion? By Dzhumashev, Ratbek; Gahramanov, Emin
  3. Optimal income taxation with endogenous participation and search unemployment By Etienne, LEHMANN; Alexis, PARMENTIER; Bruno, VAN DER LINDEN
  4. Debt Capitalization: A New Perspective on Ricardian Equivalence By David Stadelmann; Reiner Eichenberger

  1. By: Michael Pfaffermayr (University of Innsbruck; Austrian Institute of Economic Research (WIFO), CESifo and ifo-Institute); Matthias Stöckl (University of Innsbruck); Hannes Winner (University of Innsbruck)
    Abstract: This paper analyzes the relationship between corporate taxation, firm age and debt. We adapt a standard model of capital structure choice under corporate taxation, focusing on the financing and investment decisions a firm is typically faced with. Our model suggests that the debt ratio is positively associated with the corporate tax rate, and negatively with firm age. Further, we predict that the tax-induced advantage of debt is more important for older than for younger firms. To test these hypotheses empirically, we use a cross-section of 405,000 firms from 35 European countries and 126 NACE 3-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older rms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical model, we find a positive interaction between corporate taxation and firm age, indicating that the impact of corporate taxation on debt is increasing over a firm's life-time.
    Keywords: Corporate taxation; Capital structure; Firm age
    JEL: H20 H32 G32 C31
    Date: 2008
  2. By: Dzhumashev, Ratbek; Gahramanov, Emin
    Abstract: Simply by extending a well-known Yitzhaki (1974) static income tax evasion model to a dynamic one with Ak(t) technology, Lin and Yang (2001) conclude that higher taxes encourage tax evasion. We show that once the Lin and Yang (2001) model becomes fully compatible with the Yitzhaki (1974) model, a completely opposite analytical result follows. We then extend the Lin and Yang (2001) setting to account for a productive government and costly compliance, and derive corresponding analytical conditions for the ecient size of the public sector.
    Keywords: Tax Evasion; Optimal Taxation; Economic Growth
    JEL: H21 D91 H26
    Date: 2008–11–24
  3. By: Etienne, LEHMANN; Alexis, PARMENTIER; Bruno, VAN DER LINDEN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper characterizes the optimal redistributive taxation when individuals are heterogeneous in two exogenous dimensions : Their skills and their values of non-market activities. Search-matching frictions on the labor markets create unemployment. Wages, labor demand and participation are endogenous. The government only observed wage levels. Under a Maximin objective, if the elasticity of participation decreases along the distribution of skills, at the optimum, the average tax rate is increasing, marginal tax rates are positive everywhere, while wages, unemployment rates and participation rates are distorted downwards compared to their laissez-farie values. A simulation exercise confirms some of these properties under a general utilitarian objective. Taking account of the wage-cum-labor demand margin deeply changes the equity-efficiency trade-off.
    Keywords: Non-linear taxation, Redistribution, Adverse selection, Random participation, Unemployment, Labor market frictions
    JEL: D82 H21 J64
    Date: 2008–12–04
  4. By: David Stadelmann; Reiner Eichenberger
    Abstract: Rational individuals know that present government debts transform into higher future taxes. The Ricardian equivalence implies that the burden of the debt is not shifted between generations because of compensating intergenerational transfers. While the assumptions for Ricardian equivalence to hold are quite demanding, we argue that there exists another equivalence mechanism which works also with non-altruistic individuals: Public debts capitalize into property values. Thus, communities with larger net debts exhibit, ceteris paribus, lower property prices. We provide empirical evidence for debt capitalization using unique data for the Swiss metropolitan area of Zurich.
    Keywords: Capitalization; Public Debts; Ricardian Equivalence; Taxes; Local Public Goods
    JEL: H74 R51 H00
    Date: 2008–11

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