nep-pub New Economics Papers
on Public Finance
Issue of 2009‒06‒17
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation in Theory and Practice By N. Gregory Mankiw; Matthew Weinzierl; Danny Yagan
  2. Optimal tax policy when firms are internationallly mobile By Johannes Becker; Clemens Fuest
  3. The Distributional Effects of Tax-benefit Policies under New Labour: A Shapley Decomposition By Olivier Bargain
  4. Tax Policies for Low-Carbon Technologies By Gilbert E. Metcalf
  5. Incorporation and Taxation: Theory and Firm-level Evidence By Peter Egger; Christian Keuschnigg; Hannes Winner
  6. Government Transfers and Political Support By Marco Manacorda; Edward Miguel; Andrea Vigorito

  1. By: N. Gregory Mankiw; Matthew Weinzierl; Danny Yagan
    Abstract: We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital taxation are mixed, and capital income tax rates remain well above the zero level recommended by theory. Moreover, some of theory's more subtle prescriptions, such as taxes that involve personal characteristics, asset-testing, and history-dependence, remain rare in practice. Where large gaps between theory and policy remain, the difficult question is whether policymakers need to learn more from theorists, or the other way around.
    JEL: H21 H24 H25
    Date: 2009–06
  2. By: Johannes Becker (Oxford University Centre for Business Taxation); Clemens Fuest (Oxford University Centre for Business Taxation)
    Abstract: The standard tax theory result that investment should not be distorted is based on the assumption that profits are locally bound. In this paper we analyze the optimal tax policy in a model where firms are internationally mobile. We show that the optimal policy response to increasing firm mobility may be taxation, subsidization or non-distortion of the marginal investment, depending on whether the mobile firms are more or less profitable than the average firm in the economy. Our findings may contribute to understanding recent tax policy developments in many OECD countries.
    Keywords: Corporate taxes, Optimal Tax Policy, Multinational Firms
    JEL: H21 H25 F23
    Date: 2009
  3. By: Olivier Bargain (University College Dublin)
    Abstract: Using counterfactual microsimulations, Shapley decompositions of time change in inequality and poverty indices make it possible to disentangle and quantify the relative effect of tax-benefit policy changes, compared to all other effects including shifts in the distribution of market income. Using this approach also helps to clarify the different issues underlying the distributional evaluation of policy reforms. An application to the UK (1998-2001) confirms previous findings that inequality and depth of poverty would have increased under the first New Labour government, had important reforms like the extensions of income support and tax credits not been implemented. These reforms have also contributed to substantially reduce poverty among families with children and pensioners.
    Keywords: Tax-benefit policy; inequality; poverty; Shapley decomposition; microsimulation
    JEL: H23 H53 I32
    Date: 2009–06–10
  4. By: Gilbert E. Metcalf
    Abstract: The U.S. tax code provides a number of subsidies for low-carbon technologies. I discuss the difficulties of achieving key policy goals with subsidies as opposed to using taxes to raise the price of pollution-related activities. In particular, subsidies lower the cost of energy (on average) rather than raising it. Thus consumer demand responses work at cross purposes to the goal of reducing emissions (especially as average cost pricing is used for electricity). Second, it is difficult to achieve technology neutrality with subsidies -- here defined as an equal subsidy cost per ton of CO2 avoided. Third, many subsidies are inframarginal. Finally, subsidies often suffer from unintended interactions with other policies. I conclude with some observations on the use of price-based instruments. In particular I discuss how a carbon tax could be designed to achieve environmental goals of emission caps over a control period.
    JEL: H23 Q48
    Date: 2009–06
  5. By: Peter Egger (Ifo Institute, University of Munich, WIFO and CESifo); Christian Keuschnigg (University of St. Gallen (IFF-HSG)); Hannes Winner (University of Salzburg)
    Abstract: This paper provides a theory and firm-level evidence on the incorporation decision of entrepreneurs in a model of taxes and corporate governance. The theory explains how the incorporation decision of entrepreneurs is driven by taxation (corporate and personal income taxes), corporate transparency, access to external capital and limited liability. We estimate features of this model using a large cross-section of more than 540, 000 firms in European manufacturing. We find that higher personal income tax rates favor incorporation while higher corporate tax rates reduce the probability to incorporate. These findings are robust to the inclusion of other economic and institutional determinants of external financing and choice of organizational form.
    Keywords: Incorporation, governance, taxes, discrete choice models
    JEL: H25 H73 F23 C21
    Date: 2009
  6. By: Marco Manacorda; Edward Miguel; Andrea Vigorito
    Abstract: We estimate the impact of a large anti-poverty program - the Uruguayan PANES - on political support for thegovernment that implemented it. The program mainly consisted of a monthly cash transfer for a period ofroughly two and half years. Using the discontinuity in program assignment based on a pre-treatment score, wefind that beneficiary households are 21 to 28 percentage points more likely to favor the current government(relative to the previous government). Impacts on political support are larger among poorer households and forthose near the center of the political spectrum, consistent with the probabilistic voting model in politicaleconomy. Effects persist after the cash transfer program ends. We estimate that the annual cost of increasinggovernment political support by 1 percentage point is roughly 0.9% of annual government social expenditures.
    Keywords: Conditional cash transfers, redistributive politics, voting, regression discontinuity
    JEL: I38 D72
    Date: 2009–03

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