nep-pub New Economics Papers
on Public Finance
Issue of 2009‒02‒22
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Why Praise Inequality? Public Good Provision, Income Distribution and Social Welfare By Dasgupta, Indraneel
  2. Is There Scope for Gains from Revenue-Neutral Labor Tax Reforms with Flexible Outsourcing? By Koskela, Erkki; Poutvaara, Panu
  3. Flat Tax Reform.The Baltics 2000 – 2007. By Helmuts Azacis; Max Gillman
  4. Effective Corporate Income Tax Burden in Croatia By Hrvoje Šimović

  1. By: Dasgupta, Indraneel (University of Durham)
    Abstract: We consider a two-person Cournot game of voluntary contributions to a public good with identical individual preferences, and examine equilibrium aggregate welfare under a separable, symmetric and concave social welfare function. Assuming the public good is pure, Itaya, de Meza and Myles (Econ. Letters, 57: 289-296; 1997) have shown that maximization of social welfare precludes income equality in this setting. We show that their case breaks down when the public good is impure: there exist individual preferences under which maximization of social welfare necessitates exact income equalization. Even if the public good is pure, any given, positive level of income inequality can be shown to be socially excessive by suitably specifying individual preferences. Thus, sans knowledge of individual preferences, one cannot reject the claim that a marginal redistribution from the rich to the poor will improve social welfare, regardless of how small inequality is in the status quo.
    Keywords: public goods, voluntary provision, income distribution, inequality, social welfare
    JEL: D31 D63 D74 Z13
    Date: 2009–01
  2. By: Koskela, Erkki (University of Helsinki); Poutvaara, Panu (University of Helsinki)
    Abstract: We study the effects of revenue-neutral labor tax reforms in an imperfectly competitive domestic labor market under Nash wage bargaining and flexible outsourcing. A revenue-neutral increase in the wage tax progression will decrease the negotiated wage rate, increase domestic labor demand and decrease international outsourcing. In the presence of wage tax exemption, a lower payroll tax and a higher wage tax will increase domestic labor demand and decrease international outsourcing. The effect on the negotiated wage rate is positive with sufficiently strong labor market imperfections, and ambiguous with sufficiently weak labor market imperfections.
    Keywords: flexible outsourcing, wage bargaining, employment, tax-revenue neutral labor tax reforms
    JEL: H11 H22 J41 J51
    Date: 2009–01
  3. By: Helmuts Azacis (Cardiff Business School); Max Gillman (Cardiff Business School, Institute of Economics - Hungarian Academy of Sciences)
    Abstract: The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries. Assuming that government spending is a given fraction of output, the papershows how a flat tax system balanced between labor and corporate tax rates can be second best optimal. It then computes how actual Baltic tax reforms from 2000 to 2007 affect the growth rate and welfare, including transition dynamics. Comparing the actual reform effects to hypothetical tax experiments, it results that equal flat tax rates on personal and corporate income would have increased welfare in all three Baltic countries by 24% more on average than the actual reforms. This shows how equal, balanced, flat rate taxes can be optimal in both theory and practice. Further, movement towards a more equal balance between labor and capital tax rates, through changing just one tax rate, achieved almost as high or higher utility gains as in actual law for all three countries under both open and closed economy cases. This shows benefits of moving towards the optimum.
    Keywords: tax reform, endogenous growth, transitional dynamics, flat taxes
    JEL: E13 H20 O11 O14
    Date: 2008–12
  4. By: Hrvoje Šimović (Faculty of Economics and Business, University of Zagreb)
    Abstract: This paper provides an analysis of corporate income tax (CIT) in Croatia. Given the fact that Croatia implements a consumption-based CIT and a number of tax incentives, the purpose of this paper is to establish the level of effective tax burden on companies in Croatia. In addition to analyzing the basic indicators of the CIT burden, the paper also presents a calculation of the effective tax rate based on the application of the Devereux-Griffith methodology. Apart from the cost of capital, the effective marginal tax rate (EMTR) and the effective average tax rate (EATR), also the EATR will be calculated for cases in which tax holidays are used.
    Keywords: Effective tax rates, corporate income tax, tax holidays, Croatia
    JEL: H25
    Date: 2009–02–17

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