nep-pub New Economics Papers
on Public Finance
Issue of 2009‒06‒03
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Theory and Tax Practice: The Problems of Defining, Measuring and Assessing Tax Bases Tax Theory and Tax Practice By Antonio Pedone
  2. Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment By Aronsson, Thomas; Koskela, Erkki
  3. Tax Competition with Heterogeneous Firms By Richard E. Baldwin; Toshihiro Okubo
  4. Dividend taxation, share repurchases and the equity trap By Södersten, Jan; Lindhe, Tobias
  5. Tax Co-ordination in Europe: Assessing the First Years of the EU-Savings Taxation Directive By Thomas Hemmelgarn; Gaëtan Nicodème

  1. By: Antonio Pedone
    Abstract: The wide gap between tax theory and tax practice may be traced back, among other things, to the focus in tax  theory  on  the  level  and  optimal  structure  of  tax  rates, assuming that tax bases are consistently defined, precisely measurable and readily and  uniformly  assessable.  This  approach  overlooks  the  variances  between  tax  design,  tax  law, tax impact, tax incidence and tax perception. The effects of taxes on efficiency and  equity depend not just on the tax rate schedule adopted but also on differences in tax  treatments resulting from the definition, measurement and assessment of tax bases. The  Italian  experience  in  the  field  of  income  taxation  shows  the  extent  to  which  the definition,  measurement  and  assessment  of  tax  bases  matter.  Many  problems  associated  with  defining,  measuring  and  assessing  tax  bases,  which  the  personal  nature  and  high  progressivity  of  income  tax  had  contributed  to  highlighting  and  accentuating,  remain  still  unresolved  and  require  further  research  of  a  better  understanding  of  the  rationale,  causes  and  effects  of  many  differentiated  tax  treatments.
    Keywords: tax treatment, tax design, personal income tax, tax assessment 
    JEL: H20 H24
    Date: 2009–05
  2. By: Aronsson, Thomas (Umeå University); Koskela, Erkki (University of Helsinki)
    Abstract: This paper concerns optimal redistributive income taxation and provision of a public input good in a two-type model with a minimum wage policy implemented for the low-ability type, where firms may outsource part of the production process abroad, and where outsourcing is substitutable for domestic low-ability labor. Our results show that the incentives for the government to relax the self-selection constraint and to increase the employment among the low-skilled reinforce each other in terms of marginal income taxation; both of them contribute to increase the marginal income tax rate implemented for the low-ability type and decrease the marginal income tax rate implemented for the high-ability type. The appearance of equilibrium unemployment also constitutes an incentive to implement a tax on outsourcing. Without a direct instrument for taxing outsourcing, the government may reduce the amount of resources spent on outsourcing by increased provision of the public input good, which leads to less wage inequality and increased employment.
    Keywords: outsourcing, optimal nonlinear taxation, public goods, unemployment
    JEL: H21 H25 J31 J62
    Date: 2009–05
  3. By: Richard E. Baldwin (Graduate Institute, Geneva); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper studies tax competition in a setting that allows for agglomeration economies and heterogeneous firms. We find that the Nash equilibrium involves the large country charging a higher tax than the small nation, with this rate being too low from a social point of view. Tighter integration of markets leads to an intensification of competition, a drop in Nash tax rates, and a narrowing of the gap. Since large, productive firms are naturally more sensitive to tax difference in our model, large firms are the crux of tax competition in our model. This also means that tax competition has consequences for the average productivity of the big and small nations' industry; by lowering tax rates, the small nation can attract high-productivity firms.
    Keywords: Firm heterogeneity, Nash equilibrium tax, Stackelberg equilibrium tax, collusion, average productivity
    JEL: H32 P16
    Date: 2009–03
  4. By: Södersten, Jan (Department of Economics); Lindhe, Tobias (Uppsala Center for Fiscal Studies)
    Abstract: This paper reconsiders the effects of dividend taxation. Particular attention is paid to the form of the “equity trap”, that is, the extent to which cash paid to the shareholders must be taxed as dividends. Our analysis shows that Sinn’s (1991) criticism of the well-known King and Fullerton (1984) methodology for underestimating the cost of new share issues amounts to a misleading comparison across two different regimes for the equity trap. Contrary to Sinn, we find that when dividends are paid following a new issue, as assumed by King-Fullerton, the cost of capital is higher than is the case when no dividends are paid.
    Keywords: dividend taxation; share repurchases; equity trap; cost of capital; nucleus theory; growth path
    JEL: H24 H25 H32
    Date: 2009–05–12
  5. By: Thomas Hemmelgarn (European Commission.); Gaëtan Nicodème (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, ECARES, Université Libre de Bruxelles, Brussels, European Commission and CESifo.)
    Abstract: This paper reviews the economic effects of the EU Savings Taxation Directive. The Directive aims at enabling taxation of foreign interest payments received by individuals in accordance with the rules of their State of residence. The data suggest that the Directive, which is based on automatic information exchange, has not led to major shifts in international savings. However, this result has to be interpreted with caution since the available data is scarce and not always conclusive.
    Keywords: Savings Taxation, Withholding Tax, Information Exchange, European Union
    JEL: F21 F33 G12 G28 H24 H26 H87 K34 O16
    Date: 2009–06

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