nep-pub New Economics Papers
on Public Finance
Issue of 2009‒08‒22
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Negative marginal tax rates and heterogeneity By Philippe Choné; Guy Laroque
  2. Quasi-Hyperbolic Discounting and Mixed Taxation By Aronsson, Thomas; Sjögren, Tomas
  3. Endogenous income taxes in OLG economies: A clarification By Chen, Yan; Zhang, Yan
  4. Corporate Taxes and Union Wages in the United States By R. Alison Felix; James R. Hines, Jr.

  1. By: Philippe Choné; Guy Laroque (Institute for Fiscal Studies and INSEE - CREST)
    Abstract: <p>Heterogeneity is likely to be an important determinant of the shape of optimal tax schemes. This article addresses the issue in a model à la Mirrlees with a continuum of agents. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a unidimensional combination of their two characteristics. Conditions are given under which the standard result that marginal tax rates are everywhere non-negative holds. This is in particular the case when work opportunity costs are distributed independently of productivities. But one can also get negative marginal tax rates: economies where negative tax rates are optimal at the bottom of the income distribution are studied, and a numerical illustration is given, based on UK data. </p>
    Keywords: Optimal taxation, heterogeneity, welfare.
    JEL: H21 H31
    Date: 2009–05
  2. By: Aronsson, Thomas (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper develops a dynamic model with endogenous labor supply, savings and health capital, where the consumers differ in ability as well as suffer from a self-control problem generated by quasi-hyperbolic discounting. The purpose is to analyze how a paternalistic government, which implements a time-consistent mix of labor income taxation, capital income taxation and commodity taxation, ought to use this tax system for purposes of redistribution and correction when individual ability is private information. Among the results, we show how the (nonlinear) income taxes ought to be used as indirect instruments for influencing the commodity demand behavior at the individual level: the intuition is that linear commodity taxes are not flexible enough to achieve proper incentives for investments in health capital.
    Keywords: Quasi-Hyperbolic Discounting; asymmetric information; income taxation; commodity taxation
    JEL: D60 D82 H21 H23 I18
    Date: 2009–08–13
  3. By: Chen, Yan; Zhang, Yan
    Abstract: This paper introduces endogenous capital income tax rates as in Schmitt-Grohe and Uribe (1997), into the overlapping generations model with endogenous labor and consumption in both periods of life (e.g., Cazzavillan and Pintus, 2004). In contrast with the previous result that the existence of endogenous labor income taxes raises the possibility of local indeterminacy (Chen and Zhang 2009), it shows that increasing the size of capital income taxes can make shrink the range of values of the consumption--to--wage ratio associated with local indeterminacy, because of two conflicting effects on savings that operate through wage and interest rate.
    Keywords: Indeterminacy; Endogenous capital income tax rate.
    JEL: E32 C62
    Date: 2009–08–16
  4. By: R. Alison Felix; James R. Hines, Jr.
    Abstract: This paper evaluates the effect of U.S. state corporate income taxes on union wages. American workers who belong to unions are paid more than their non-union counterparts, and this difference is greater in low-tax locations, reflecting that unions and employers share tax savings associated with low tax rates. In 2000 the difference between average union and non-union hourly wages was $1.88 greater in states with corporate tax rates below four percent than in states with tax rates of nine percent and above. Controlling for observable worker characteristics, a one percent lower state tax rate is associated with a 0.36 percent higher union wage premium, suggesting that workers in a fully unionized firm capture roughly 54 percent of the benefits of low tax rates.
    JEL: H22 H25 J31 J51
    Date: 2009–08

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