nep-pub New Economics Papers
on Public Finance
Issue of 2009‒05‒02
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The taxation of capital returns in overlapping generations economies without financial assets. By Julio Davila
  2. Corporate Income Tax and Economic Distortions By Gaetan Nicodeme
  3. Corporate Effective Tax Rates in an Enlarged European Union By Christina Elschner; Werner Vanborren
  4. A Competitive Equilibrium for a Warm Glow Economy By Nizar Allouch
  5. A Core-equilibrium Convergence in an Economy with Public Goods By Nizar Allouch
  6. Social Security Reforms in Colombia: Striking Demographic and Fiscal Balances By Sergio Clavijo

  1. By: Julio Davila (Paris School of Economics - Centre d'Economie de la Sorbonne)
    Abstract: I show in this paper that in an overlapping generations economy with production à la Diamond (1970) in which the agents can only save in terms of capital (i.e. with not asset bubbles à la Tirole (1985) or public debt as in Diamond (1965)), there is a period-by-period balanced fiscal policy supporting a steady state allocation that Pareto-improves upon the laissez-faire competitive equilibrium steady state (whithout having to resort to intergenerational transfers) if there is no first generation or the economy starts there. A transition from the competitive equilibrium steady state to this other allocation is also Pareto-improving if the former is dynamically inefficient, but even in the dynamically efficient case if the elasticity of output to capital is high enough. This intervention allows every subsequent generation to attain, as a competitive equilibrium outcome, the highest utility attainable at a steady state through the existing markets for the consumption good and the production factors. The active fiscal policy consists of taxing (or subsidizing, in the dynamically efficient case) linearly the returns to capital, while balancing the budget period by period through a lump-sum transfer (or tax, respectively) on second period income. This policy does not finance any public spending, since there is none in the model. The only purpose of the intervention is to decentralize as a competitive equilibrium the steady state allocation that maximizes the utility of the representative agent among all steady state allocations attainable through the existing markets.
    Keywords: Taxation of capital, overlapping generations.
    JEL: E62 E21 E22 H21
    Date: 2008–11
  2. By: Gaetan Nicodeme (European Commission)
    Abstract: As any non-lump-sum tax, corporate income taxation creates distortions in economic choices, reducing its efficiency. This paper reviews some of these domestic and international distortions and their most recent estimates from the economic literature. Distortions originating from income shifting between capital and labour sources, profit shifting across jurisdictions, the effects of taxation on business location and foreign direct investment are the major sources of distortions.
    Keywords: European Union, Corporate taxation, distortions, tax efficiency.
    JEL: H25
    Date: 2009–04
  3. By: Christina Elschner (University of Mannheim, Germany); Werner Vanborren (European Commission)
    Abstract: This paper offers an assessment of European corporate tax regimes using forward-looking indicators for corporate investment based on the Devereux-Griffith methodology. It draws on time series of average effective tax rates (EATR) using a detailed set of tax parameters for 27 EU Member States as well as some important non-EU countries. The analysis shows that over time the reduction in the corporate effective average tax rates (EATR) was lower than for the corporate statutory rates and the figures suggest that simple corporate tax base broadening by means of less generous capital allowances is not a sufficient explanation for this phenomenon. Finally, it is shown that the tax gap between the old and new EU Member States has grown over time and even accelerated after accession.
    Keywords: European Union, effective tax rate, effective tax burden, corporate taxation, company taxation.
    JEL: H25
    Date: 2009–04
  4. By: Nizar Allouch (Queen Mary, University of London)
    Abstract: Despite a widespread interest in the warm glow model [Andreoni (1989,1990)], surprisingly most attention focused on the voluntary contribution equilibrium of the model, and only very little attention has been devoted to the competitive equilibrium. In this paper, we introduce the notion of competitive equilibrium for a warm glow economy [Henceforth, warm glow equilibrium]. Then, we establish (and prove), in the contest of our model, the three fundamental theorems of general equilibrium: (i) warm glow equilibrium exists; (ii) a warm glow equilibrium is Pareto efficient; and (iii) a Pareto efficient allocation can be decentralized as a warm glow equilibrium). The concept of a warm glow equilibrium may prove to be very useful to the normative and positive theory of public goods provision. First, it is a price based mechanism achieving efficient outcomes. Secondly, not only the warm glow equilibrium outcomes could serve as a point of reference to measure free-riding and welfare loss, but also due to warm glow effects, unlike Lindahl allocations, they are more likely to be achieved.
    Keywords: Warm glow, Altruism, Competitive equilibrium, Free riding, Public goods provision
    JEL: H41 D64 C62
    Date: 2009–04
  5. By: Nizar Allouch (Queen Mary, University of London)
    Abstract: This paper deals with a core-equilibrium equivalence in an economy with public goods where preferences of consumers display warm glow effects. We demonstrate that provided that each consumer becomes satiated to other consumers provision, it holds that, for a sufficiently large economy, the set of Edgeworth allocations is non-empty. Moreover, we show that an Edgeworth allocation could be decentralized as a warm glow equilibrium.
    Keywords: Competitive equilibrium, Warm glow, Public goods, Edgeworth, Core, Decentralization
    JEL: H41 C71 D64
    Date: 2009–04
  6. By: Sergio Clavijo
    Abstract: This paper analyzes the economic rationale for adopting parametric pension reforms and reforms broadening the coverage of public health care in Colombia during 1993-2008. Parametric pension reforms have focused on increasing the retirement age and moderating replacement rates. The health system reforms aimed at reaching universal coverage by 2012, while providing a more homogenous level of services. Our results indicate that the Net Present Value of the debt of the social security system in Colombia is roughly 160 percent of GDP for pensions and about 97 percent of GDP for the health system.
    Keywords: Social security , Colombia , Fiscal reforms , Labor market policy , Pensions , Health care , Government expenditures , Social safety nets ,
    Date: 2009–03–19

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