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on Public Finance |
| By: | FitzRoy, Felix (University of St. Andrews); Jin, Jim (University of St. Andrews) |
| Abstract: | Should two-band income taxes be progressive given a general income distribution? We provide a negative answer under utilitarian and max-min welfare functions. While this result clarifies some ambiguities in the literature, it does not rule out progressive taxes in general. If we maximize total or weighted utility of the poor, as often intended by the society, progressive taxes can be justified, especially when the 'rich' are very rich. Under these objectives we obtain necessary conditions for progressive taxes, which only depend on aggregate features of income distributions. The validity of these conditions is examined using plausible income distributions. |
| Keywords: | progressive tax, utilitarian, max-min, help the poor |
| JEL: | H20 D40 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4167&r=pub |
| By: | N. Gregory Mankiw; Matthew Weinzierl |
| Abstract: | Should the income tax include a credit for short taxpayers and a surcharge for tall ones? The standard Utilitarian framework for tax analysis answers this question in the affirmative. Moreover, a plausible parameterization using data on height and wages implies a substantial height tax: a tall person earning $50,000 should pay $4,500 more in tax than a short person. One interpretation is that personal attributes correlated with wages should be considered more widely for determining taxes. Alternatively, if policies such as a height tax are rejected, then the standard Utilitarian framework must fail to capture intuitive notions of distributive justice. |
| JEL: | H2 H21 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14976&r=pub |
| By: | Epstein, Gil S. (Bar-Ilan University); Gang, Ira N. (Rutgers University) |
| Abstract: | In this paper we try to understand the phenomena whereby a large proportion of the population evades tax payments. We present a model which incorporates elements from the theory of information cascades with the standard model of tax evasion and analyze the connection between the decision of a potential tax evader, the number of tax evaders and the number caught in previous periods. General conditions exist under which any expected utility maximizing tax evaders will decide to emulate other tax evaders. |
| Keywords: | tax evasion, uncertainty, information cascades |
| JEL: | H26 H31 D82 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4153&r=pub |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg) |
| Abstract: | Previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons. This paper considers a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and the low-ability type, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component, i.e., a component that is larger for the high-ability than for the low-ability type. Moreover, leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen. |
| Keywords: | Optimal taxation; redistribution; public goods; relative consumption; status; positional goods |
| JEL: | D62 H21 H23 H41 |
| Date: | 2009–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0774&r=pub |
| By: | William K. Jaeger (Oregon State University) |
| Abstract: | Recent literature has investigated whether the welfare gains from environmental taxation are larger or smaller in a second-best setting than in a first-best setting. This question has mainly been addressed indirectly, by asking whether the second-best optimal environmental tax is higher or lower than the first-best Pigouvian rate. Even this indirect question, though, has itself been approached indirectly, comparing the second-best optimal environmental tax to a proxy for its first-best value, an expression for marginal social damage (MSD). On closer examination, however, MSD becomes ambiguously defined and variable in a second-best setting, making it an unreliable proxy for the first-best Pigouvian rate. With these concerns in mind, the current analysis reevaluates the central welfare question both directly and indirectly and finds that when compared directly to its first-best Pigouvian value, the second-best optimal environmental tax generally rises with increased revenue requirements. Even in cases where the second-best optimal environmental tax is lower than its first-best value, the welfare gains may be greater than in a first-best setting. These results suggest that the marginal fiscal benefit (revenue recycling effect) exceeds the marginal fiscal cost (tax base effect) over a range of environmental tax rates that, for benchmark models, extends above the first-best Pigouvian rate. Results in the tax interaction literature are fully consistent with these interpretations once the effects of normalizations and numeraires are fully recognized. These findings reinforce the intuition that environmental policy complements rather than competes with the provision of other public goods. |
| Keywords: | Optimal Environmental Tax, Second-best, Double Dividend, Tax Interaction Effect, Revenue Recycling, Tax Base Effect, Pigouvian Rate, Excess Burden |
| JEL: | H21 Q5 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.9&r=pub |
| By: | Selin, Håkan (Department of Economics) |
| Abstract: | In recent years, the study of how individuals respond to policies that aim at promoting pension savings has emerged as a vital area of economic research. This paper adds to this literature by estimating the tax price elasticity of contributions to tax-favoured pension savings accounts on a population of self-employed individuals. I exploit a unique total data base over the Swedish population that covers the years 1999 to 2005. When using instrumental variables I obtain a tax price elasticity estimate of -0.53 and a virtual income elasticity estimate of 0.11, whereas OLS produces estimates that conflict with consumer theory. |
| Keywords: | Income taxation; fringe benefits; individual pension savings; self-employment |
| JEL: | G23 H24 J26 J33 |
| Date: | 2009–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2009_006&r=pub |
| By: | Ellen R. McGrattan |
| Abstract: | Previous studies quantifying the effects of increased capital taxation during the U.S. Great Depression find that its contribution is small, both in accounting for the downturn in the early 1930s and in accounting for the slow recovery after 1934. This paper confirms that the effects are small in the case of taxation of business profits, but finds large effects in the case of taxation of dividend income. Tax rates on dividends rose dramatically during the 1930s and, when fed into a general equilibrium model, imply significant declines in investment and equity values and nontrivial declines in gross domestic product (GDP) and hours of work. The results are amplified if businesses make intangible investments which can be expensed from taxable capital income. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:670&r=pub |
| By: | Angelo Antoci; Paolo Russu; Luca Zarri |
| Abstract: | An oft-cited and robust result from Public Goods Game experiments is that, when subjects start playing, the aggregate level of contributions is significantly different from zero. At the same time, a sizeable proportion of players free ride from the outset. Behavioural economics has persuasively shown that these laboratory findings are compatible with the presence of motivationally heterogeneous agents, displaying both standard, self-centred preferences and non-standard, interdependent preferences. However, at the theoretical level, economists would prefer to account for motivational heterogeneity endogenously, instead of simply assuming it from the outset. Our work provides such endogenisation, by assuming that social evolution is driven by material payoffs only. By separately focusing on different types of ‘experimentally salient’ pro-social players (such as Reciprocators, Strong Reciprocators and Altruists), we are able to shed light – to our knowledge, for the first time, within the public good framework – on the evolutionary stability of two-type populations consisting of positive proportions of both ‘nice’ and ‘mean’ guys. |
| Keywords: | Free Riding; Strong Reciprocity; Altruism; Nonstrategic Punishment; Public Goods Game; Evolutionary Game Theory. |
| JEL: | C7 D6 H8 Z1 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:55&r=pub |
| By: | Angelo Antoci; Paolo Russu; Luca Zarri |
| Abstract: | Experimental evidence indicates that free riders and strongly reciprocal papers coexist in the public goods game framework. By means of an evolutionary analysis, we provide an endogenization of this behavioral regularity. |
| Keywords: | Free Riding, Cooperation, Strong Reciprocity, Public Goods Game, Evolutionary Game Theory. |
| JEL: | B41 C73 D74 Z13 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:54&r=pub |