nep-pub New Economics Papers
on Public Finance
Issue of 2009‒12‒11
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Note on Estimating Tax Elasticities By Pronab Sen
  2. Corporate tax competition between firms By Simon Loretz; Padraig J. Moore
  3. Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit taxes By Haufler, Andreas; Stähler, Frank
  4. Taxation and the Quality and Quantity of Entrepreneurship By Asoni, Andrea; Sanandaji, Tino
  5. Jens Warming (1931) on Open Access, Pigovian Tax, and Property Rights By Eggert, Håkan
  6. The role of mobility in tax and subsidy competition By Alexander Haupt; Tim Krieger
  7. A Simple Model of Tax-Favored Retirement Accounts By Andras Simonovits
  8. Kakwani decomposition of redistributive effect: Origins, critics and upgrades By Ivica Urban
  9. Indices of redistributive effect and reranking: reinterpretation By Ivica Urban
  10. Income Redistribution and Public Good Provision: an Experiment By Jonathan Maurice; Marc Willinger; Agathe Rouaix
  11. Institutional Quality and Fiscal Transparency By Nicolo Andreula; Alberto Chong; Jorge Guillen
  12. Pension Reforms in an Aging Society: A Fully Displayed Cohort Model By Andras Simonovits

  1. By: Pronab Sen
    Abstract: The most popular technique for estimating tax elasticities is the “Proportional Adjustment” method. This paper shows that the standard methodology used will almost invariably lead to biased elasticity estimates, and proposes an alternative methodology which avoids this problem. [WP]
    Keywords: tax, elsticities, adjustment, propotional, elasticity, tax base, tax revenue, constant rate structure, methodology, developing countries, data, budget estmates,
    Date: 2009
  2. By: Simon Loretz (Oxford University); Padraig J. Moore (Deutsche Bank)
    Abstract: Firms' tax planning decisions, similar to their other operational decisions, are made in a competitive environment. Various stakeholders observe the tax payments and evaluate these against the relevant peer group, which creates interdependencies in the tax planning activities of firms. Introducing the concept of reputational loss we show the positive interdependence in a theoretical model and test it in a spatial econometric model. Empirical evidence suggests that benchmarking takes place both within countries and within industries, however for the latter it is important to include firms in large non-EU OECD countries. Further, the analysis shows that spatial interdependence is stronger for the largest firms and if they have an average effective tax rate above the statutory tax rate.
    Keywords: Corporate taxation, benchmarking, tax competition, spatial econometrics
    JEL: H25 M40
    Date: 2009
  3. By: Haufler, Andreas; Stähler, Frank
    Abstract: An important puzzle in corporate taxation is that effective tax rates have fallen significantly while tax revenue has simultaneously risen in most countries. Moreover, the gross profitability of firms seems to be lower in high-tax countries, even though standard models of international investment would yield the opposite conclusion. We offer an explanation for these stylized facts by setting up a simple two-country model of tax competition with heterogenous firms. In this model a unique, asymmetric Nash equilibrium can be shown to exist, provided that countries are sufficiently different with respect to their exogenous market conditions. In equilibrium the larger country levies the higher tax rate and attracts the high-cost firms. A simultaneous expansion of both markets intensifies tax competition and causes both countries to reduce their tax rates, despite higher corporate tax bases.
    Keywords: tax competition; heterogeneous firms; imperfect competition
    JEL: H25 H73 F15 F21
    Date: 2009–11–23
  4. By: Asoni, Andrea (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Research Institute of Industrial Economics (IFN))
    Abstract: We study the effect of taxation on entrepreneurship, taking into account both the amount of entry and the quality of new ventures. We show that even with risk neutral agents and no tax evasion progressive taxes can increase entrepreneurial entry, while reducing average firm quality. So called "success taxes" increase startup of lower value business ideas by reducing the option value of pursuing better projects. This suggests that the most common measure used in the literature, the likelihood of entry into self-employment, may underestimate the adverse effect of taxation.
    Keywords: Taxation; Entrepreneurial Entry; Quality of Entrepreneurial Firms
    JEL: H24 H25 L26
    Date: 2009–11–13
  5. By: Eggert, Håkan (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This article summarizes the contribution in fisheries economics by the Danish economist Jens Warming and gives a translation of his article “Aalegaardsretten” (The Danish Right to Eel Weir, 1931). Warming, provides an early reference on the problem of open access, precedes Arthur Pigou in suggesting an optimal tax as a correction measure, which I refer to as a Warming landing tax in fisheries, and explains how property rights in fisheries will lead to maximized resource rent and prevent overfishing. What is missing in Warming’s description of the problem is the dynamic aspect and that the economics of natural resources should be analyzed in a capital theoretic framework, which was later established by Anthony Scott (1955a; 1955b).<p>
    Keywords: Common pool resource management; fisheries; optimal tax; Pigou tax; property rights
    JEL: B20 H20 Q20
    Date: 2009–12–01
  6. By: Alexander Haupt (University of Plymouth); Tim Krieger (University of Paderborn)
    Abstract: In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments overcompensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices.
    Keywords: Tax competition, subsidy competition, capital and firm mobility, foreign direct investment
    JEL: H71 H87 F H
    Date: 2009
  7. By: Andras Simonovits (Institute of Economics - Hungarian Academy of Sciences, Department of Economics - CEU, Mathematical Institute - Budapest University of Technology)
    Abstract: To defend myopic workers against themselves, the government introduces a mandatory system but to help savers, it adds tax-favored retirement accounts. In a very simple model, where benefits are proportional to contributions, we compare three extreme systems: (i) the pure mandatory system, (ii) the asymmetric system, where only the savers participate in the voluntary system, (iii) the symmetric system, where both types participate proportionally to their wages. The symmetric voluntary system is welfare-superior to the asymmetric one as well as to the pure mandatory system, which in turn are equivalent to each other.
    Keywords: mandatory pensions, tax-favored retirement accounts, voluntary contributions, subsidies.
    JEL: H55 D91
    Date: 2009–08
  8. By: Ivica Urban (Institute of Public Finance, Zagreb)
    Abstract: Kakwani decomposition of redistributive effect into vertical and reranking terms is one of the most widely used tools in measurement of income redistribution. This paper describes how the decomposition has emerged, how its proponents managed to expand and upgrade it, and how extensively it has been employed in empirical research. However, the arguments are presented that the decomposition features certain methodological problems and it is therefore called for its reinterpretation.
    Keywords: income redistribution, Kakwani decomposition, reranking, horizontal inequity, progressivity
    JEL: D63 H22 H23
    Date: 2009
  9. By: Ivica Urban (Institute of Public Finance, Zagreb)
    Abstract: Kakwani decomposition of redistributive effect into vertical and reranking terms is one of the most widely used tools in measurement of income redistribution. However, Urban (2009) argues that the decomposition features some methodological problems and calls for its reinterpretation. This paper builds several different measurement models, constructs new indices of redistributive effect and reranking reinventing the existing ones, and establishes important propositions on the role of reranking in redistributive process. All that is done to prove that standard interpretation of Kakwani decomposition is misleading. New roles are suggested for the well-known indices of redistributive, vertical and reranking effect.
    Keywords: Kakwani decomposition, redistributive, reranking and vertical effects.
    JEL: D63 H22 H23
    Date: 2009
  10. By: Jonathan Maurice; Marc Willinger; Agathe Rouaix
    Abstract: We provide a new experimental investigation of the neutrality theorem of Warr (1983), who states ”when a single public good is provided at positive levels by private individuals, its provision is unaffected by a redistribution of income”. Instead of comparing different income distributions across groups as Chan et al. (1996), in our experiment the total group endowment is redistributed after a 10 rounds sequence. We compare an unequalizing redistribution (EI) and an equalizing redistribution (IE), to two benchmark treatments for which the 10 rounds sequence is repeated, either with an equal distribution (EE) or an unequal distribution (II). The constituent game has a unique interior dominant strategy equilibrium. Our data support the neutrality theorem (after controlling for the restart effect): redistribution has no effect on the total amount of public good in none of the tested treatments. However, the analysis of individual behavior shows that ”poor” subjects over-contribute with respect to their Nash-contribution, while ”rich” subjects tend to play their Nash-contribution or under-contribute slightly. Furthermore, after a redistribution, subjects react asymetrically: subjects who get poorer reduce their contribution of a larger amount than the amount of contribution added by subjects who become richer. And it is shown that the latter do not react enough to the redistribution.
    Date: 2009–11
  11. By: Nicolo Andreula; Alberto Chong; Jorge Guillen
    Abstract: This paper uses new data on fiscal transparency for a cross-section of countries; these data possess several advantages. First, the data are based on in-depth reports using a standardized methodology and protocol. Second, this study covers 82 countries, more than previous comparable studies. Third, the fiscal measures used have been obtained with the collaboration of government authorities, which makes them particularly reliable. Finally, the data collection has been undertaken at a high level. These new data permit examination of a relevant but little-studied issue, the role of institutional quality in a country’s fiscal transparency. It is shown that there is in fact a causal relationship between institutions and transparency. The findings are robust to changes in specification and a host of transparency sub-measures.
    Keywords: Fiscal management, Institutions, Public administration, Transparency
    JEL: H50 H83
    Date: 2009–12
  12. By: Andras Simonovits (Institute of Economics - Hungarian Academy of Sciences, Department of Economics - CEU, Mathematical Institute - Budapest University of Technology)
    Abstract: We fully display a cohort model of an economy with an aging population, taking into account varying family size, habit formation, inheritance and credit constraints. Filling the model with numbers, we are able to compare different pension reforms: 1. the base run, 2. the reduced accrual rates, 3. replacing wage indexation with price indexation and 4. raised retirement age. Whether the policy changes are anticipated or not, the private reactions widely differ.
    Keywords: population aging, pension models, pension reforms
    JEL: H1 H5 H6
    Date: 2009–10

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