nep-pub New Economics Papers
on Public Finance
Issue of 2009‒09‒19
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Behavioral Economics and Tax Policy By William Congdon; Jeffrey R. Kling; Sendhil Mullainathan
  2. Tax avoidance, endogenous social norms, and the comparison income effect By Alessandro Balestrino
  3. Inequality, Mobility and Redistributive Taxation in a Finance-constrained Economy By Ryo Arawatari; Tetsuo Ono
  4. The distributional implications of income underreporting in Hungary By Benedek, Dora; Lelkes, Orsolya

  1. By: William Congdon; Jeffrey R. Kling; Sendhil Mullainathan
    Abstract: Behavioral economics is changing our understanding of how economic policy operates, including tax policy. In this paper, we consider some implications of behavioral economics for tax policy, such as how it changes our understanding of the welfare consequences of taxation, the relative desirability of using the tax system as a platform for policy implementation, and the role of taxes as an element of policy design. We do so by reviewing the logic of specific features of tax policy in light of recent findings in areas such as tax salience, program take-up, and fiscal stimulus.
    JEL: H2
    Date: 2009–09
  2. By: Alessandro Balestrino
    Abstract: We analyse a model of income tax avoidance with heterogenous agents; we assume the presence of a comparison income e¤ect and of a psychic cost (disutility) of tax dodging. In this context, we show two sets of results. First, we study the policy preferences of the agents, and identify a median-agent political equilibrium. Paralleling previous ?ndings in the optimal taxation literature, we show that the comparison income e¤ect calls for a high degree of progressivity of the income tax; additionally, we ?nd that this tendence is strenghtened by the psychic cost of avoidance. Second, we model the endogenous formation of the stigma attached to the act of avoidance as a "conformism game", and propose a "modal-agent social equilibrium". We also argue that, in general, the stigma is motivated by the desire to make redistribution more e¤ective, as well as by the need to facilitate social competition.
    Keywords: tax avoidance, social norms, conformism, comparison income, median voter
    JEL: D72 H26 H31 Z13
    Date: 2009–06
  3. By: Ryo Arawatari (Faculty of Economics, Shinshu University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This paper presents a simple model that displays a joint determination of income inequality and intergenerational mobility affected by redistributive taxation. The model shows that a larger redistribution improves equality and utility and enhances mobility when the poor are financially constrained, however it creates a trade-off between the rich and the poor in terms of utility when the poor are financially unconstrained. The model also shows that the size of the redistribution as well as wage inequality play key roles in explaining the cross-country differences in inequality and mobility among OECD countries.
    Keywords: inequality; Gini coefficient; intergenerational mobility; redistributive taxation; financial constraints.
    JEL: D31 H23 O23
    Date: 2009–09
  4. By: Benedek, Dora; Lelkes, Orsolya
    Abstract: The paper estimates the distributional implications of income tax evasion in Hungary based on a random sample of administrative tax records of 230 thousand individuals. Gross incomes in the administrative tax records are compared with those in a nationally representative household budget survey, assuming that tax-evaders are more likely to report their true incomes in an anonymous interview. Our estimates show that the average rate of underreporting is 11%, which conceals large differences between self-employed (who hide the majority of their incomes) and employees. The estimates are likely to be lower bound, due to measurement error in the income survey. These rates are then used in EUROMOD, a tax-benefit microsimulation model to calculate the fiscal and distributional implications of underreporting, while taking account of all major direct taxes and cash benefits and also their interactions. Tax evasion reduces fiscal revenues from personal income taxes by about 19%. While the occurrence of poverty is not affected, income inequality becomes significantly higher (the Gini coefficient increases by 7%), suggesting that high earners tend to evade proportionately more. Finally, we find that tax evasion largely reduces the progressivity of the tax system.
    Keywords: tax policy; tax evasion; income distribution; self-employed
    JEL: H21 H22 D31 I38 C8 H26
    Date: 2009–09–09

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