nep-pub New Economics Papers
on Public Finance
Issue of 2009‒01‒31
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Rethinking the Role of Fiscal Policy By Martin S. Feldstein
  2. How Globalization Affects Tax Design By James R. Hines, Jr.; Lawrence H. Summers
  3. Death And Taxes: The Impact Of Progressive Taxation On Health By Anca Cotet
  4. Sales Tax: Specific or Ad Valorem Tax for a Non-renewable Resource? By Nguyen Manh Hung; Nguyen Van Quyen
  5. Environmental Taxes in an Economy with Distorting Taxes and a Heterogeneous Population By Hoel , Michael
  6. Firm Entry Dynamics and Taxation of Corporate Profits: Evidence from Europe By Da Rin, M.; Di Giacomo, M.; Sembenelli, A.

  1. By: Martin S. Feldstein
    Abstract: As recently as two years ago there was a widespread consensus among economists that fiscal policy is not useful as a countercyclical instrument. Now governments in Washington and around the world are developing massive fiscal stimulus packages, supported by a wide range of economists in universities, governments, and businesses. Why has this change occurred? What are the principles for designing a potentially useful fiscal stimulus? And what will happen if the current fiscal stimulus fails?
    JEL: E6 E62 H3
    Date: 2009–01
  2. By: James R. Hines, Jr.; Lawrence H. Summers
    Abstract: The economic changes associated with globalization tighten financial pressures on governments of high-income countries by increasing the demand for government spending while making it more costly to raise tax revenue. Greater international mobility of economic activity, and associated responsiveness of the tax base to tax rates, increases the economic distortions created by taxation. Countries with small open economies have relatively mobile tax bases; as a result, they rely much less heavily on corporate and personal income taxes than do other countries. The evidence indicates that a ten percent smaller population in 1999 is associated with a one percent smaller ratio of personal and corporate income tax collections to total tax revenues. Governments of small countries instead rely on consumption-type taxes, including taxes on sales of goods and services and import tariffs, much more heavily than do larger countries. Since the rapid pace of globalization implies that all countries are becoming small open economies, this evidence suggests that the use of expenditure taxes is likely to increase, posing challenges to governments concerned about recent changes in income distribution.
    JEL: H20
    Date: 2009–01
  3. By: Anca Cotet (Department of Economics, Ball State University)
    Abstract: More progressive taxes, holding tax liability constant, generate disincentives for health investment by decreasing benefits for additional working time and, thus, decreasing returns to health. On the other hand, progressive taxation may induce individuals to invest more in health for the purpose of extending their working life, because lifetime maximization could imply less work per period but more working years. I identify the effect of progressivity through differences in labor income tax rates among states. I find that the former effect dominates, more progressive taxes are negatively correlated with health, and argue that neither selection effects nor reverse causality can explain this result.
    Keywords: Tax Progressivity, Labor Income Tax, Health Investment.
    JEL: H31 I12 D91
    Date: 2009–03
  4. By: Nguyen Manh Hung (Département économique, Université Laval, Quebec, Canada G1W 4R9); Nguyen Van Quyen (Département de science économique, Université d'Ottawa, 55 Laurier E, Ottawa, Ontario, Canada K1N 6N5)
    Abstract: This paper shows that for a time-independent specific tax and a time-independent ad valorem tax that induce the same competitive equilibrium in the Hotelling model of resource extraction, the ad valorem tax yields a higher level of discounted tax revenues than the specific tax. Moreover, given the same level of discounted tax revenues, the ad valorem tax also yields a higher level of social welfare. Finally, for the time-dependent schedules of optimal ad valorem tax and optimal specific tax, we show that when appropriately set, they are equivalent in implementing the dynamic social optimum and providing the same discounted tax revenues.
    Keywords: Non-renewable Resources, Ad Valorem Tax, Specific Tax, Welfare
    JEL: H21 Q30
    Date: 2009
  5. By: Hoel , Michael (Dept. of Economics, University of Oslo)
    Abstract: During the last couple of decades, there has been a large literature discussing how the properties of emission taxes are affected by the existence of distortionary taxes. Most of this literature ignores distributional aspects of environmental taxes and other types of environmental policy instruments. The present paper considers a very simple model with heterogeneous households, differing in income earning ability. The tax system i s not necessarily fully optimal. Instead, a tax function is assumed the be exogenously given, but the parameters of this tax function are opmtimally chosen. The rule for the second-best opmtimal environmental tax is derived and compared with the Pigovian rule. The results derived in the present paper are related to the results from the literature on public goods provision under distortionary taxes.
    Keywords: Environmental taxes; public goods; distortionary taxation
    JEL: H23 H41 Q58
    Date: 2008–02–01
  6. By: Da Rin, M.; Di Giacomo, M.; Sembenelli, A. (Tilburg University, Center for Economic Research)
    Abstract: Can tax policy foster the creation of new companies? To answer this question, we assemble a novel country-industry level panel database with entry data of European companies between 1997 and 2004. We compute effective tax rates and explore the effect of corporate taxation policy on entry rates at country-industry level. Drawing on the recent political economy literature, we also account for the endogeneity of taxation. We find a significant negative effect of corporate income taxation on entry rates. The effect is concave and suggests that tax reductions affect entry rates only below a certain threshold tax level. We also find that a reduction in corporate tax rates is more effective in countries with better institutional infrastructure. Our results are robust to alternative measures of effective taxation and to the use of alternative and additional explanatory variables.
    Keywords: Corporate Taxation;Political Economy;Firm Entry;Entry Regulation;Panel Data.
    JEL: C23 H32 L51 M13
    Date: 2008

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