nep-pub New Economics Papers
on Public Finance
Issue of 2009‒03‒22
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Financing Social Security by Taxing Capital Income – A Bad Idea? By Lars Kunze; Christiane Schuppert
  2. Estate taxation with warm-glow altruism By Carlos Garriga; Fernando Sánchez-Losada
  3. Patriotism, taxation and international mobility By Geys, Benny; Konrad, Kai A; Qari, Salmai

  1. By: Lars Kunze; Christiane Schuppert
    Abstract: This paper examines the growth effects of an increase of capital income taxes with additional revenue being devoted to cut wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping generations model with endogenous growth, unemployment and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU15 reveals that European countries can indeed gain in form of higher employment and growth if the initial capital income tax is not too high.
    Keywords: Capital income taxation, social security, imperfect labor market, overlapping generations, growth
    JEL: H24 H55 O40
    Date: 2009–03
  2. By: Carlos Garriga; Fernando Sánchez-Losada
    Abstract: This article examines the properties of the optimal fiscal policy in an economy with warm-glow altruism (utility interdependence) and heterogeneous individuals. We propose a new efficiency concept, D-efficiency, that considers an implicit constraint in the act of giving: donors cannot bequeath to donees more than their existing resources. Considering this constraint, we show that the market equilibrium is not socially efficient. The efficient level of bequest transfers can be implemented by the market with estate and labor-income subsidies and a capital-income tax. In the absence of lump-sum taxation, the government faces a trade-off between minimizing distortions and eliminating external effects. The implied tax policy differs from Pigovian taxation since the government's ability to correct the external effects is limited. Finally, we show that the efficiency-equity trade-off does not affect the qualitative features of the optimal distortionary fiscal policy.
    Keywords: Altruism ; Taxation
    Date: 2009
  3. By: Geys, Benny; Konrad, Kai A; Qari, Salmai
    Abstract: For patriotic citizens, living in their native country is intrinsically preferable compared to living in the diaspora. In this paper, we analyze the implications of such a patriotic lock-in in a world with international migration and redistributive taxation. In a formal model of redistribution with international migration and fiscal competition we derive the main hypothesis: that countries with a more patriotic population should have higher redistributive taxes. Using ISSP survey data and combining them with OECD taxation data, we find robust evidence suggesting that a) higher patriotism is associated with higher tax burdens, and b) this relation is stronger for the upper-middle range of the income distribution.
    Keywords: fiscal competition; international mobility; patriotism; redistribution; taxation
    JEL: H20 H73
    Date: 2009–03

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