nep-pub New Economics Papers
on Public Finance
Issue of 2009‒12‒19
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal tax progressivity in unionised labour markets: what are the driving forces? By Boeters, Stefan
  2. Explaining Taxes at the Upper Tail of the Income Distribution: The Role of Utility Interdependence By Samano, Daniel
  3. A comparison of optimal tax policies when compensation or responsibility matter By L. JACQUET; D. VAN DE GAER
  4. Redistributive Taxation, Public Expenditure, and Size of Governent By Sanghamitra Bandyopadhyay; Joan Esteban
  5. Tax morale and public spending inefficiency By Guglielmo Barone; Sauro Mocetti
  6. Tax Policy for Economic Recovery and Growth. By Christopher Heady; Åsa Johansson; Jens Arnold; Bert Brys; Laura Vartia
  7. Pro-Poor Tax reforms, with an Application to Mexico By Jean-Yves Duclos; Paul Makdissi; Abdelkrim Araar
  8. Lending a Hand: How Federal Tax Policy Could Help Get More Cash to More Charities By A. Abigail Payne
  9. Keeping Slovenian Public Finances on a Sustainable Path By Pierre Beynet; Willi Leibfritz
  10. Fiscal Competition, Decentralization, Leviathan, and Growth By Ken Tabata
  11. Pension Reform: How Canada can Lead the World By Keith Ambachtsheer

  1. By: Boeters, Stefan
    Abstract: In labour markets with collective wage bargaining higher progressivity of the labour income tax creates a trade-off. On the one hand, wages are lowered and unemployment decreases, on the other hand, the individual labour supply decision is distorted at the hours-of-work margin. The optimal level of tax progressivity within this trade-off is determined using a numerical general equilibrium model with imperfect competition on the goods market, collective wage bargaining and a labour-supply module calibrated to empirically plausible elasticity values. The model is calibrated to macroeconomic and institutional parameters of both the OECD average and a number of individual OECD-countries. In most cases the optimal degree of tax progressivity is below the actual level. A decomposition approach shows that the optimal level is increased by high unemployment and by the general tax level. --
    Keywords: labour taxation,tax progressivity,optimal taxation,collective wage bargaining,unemployment
    JEL: H21 J22 J51 J64
    Date: 2009
  2. By: Samano, Daniel
    Abstract: Optimal tax theory has difficulty rationalizing high marginal tax rates at the upper end of the income distribution. In this paper, I construct a model of optimal income taxation in which agents' preferences are interdependent. I derive a simple expression for optimal taxes that accommodates consumption externalities within Mirrlees (1971) framework. Using this expression, I conduct a positive analysis of taxation: assuming that observed taxes are optimal, I derive analytic expressions for i) a parameter that measures the degree of agents' utility interdependence and ii) a function that quantifies the consumption externality agents of different income impose to society. Using these expressions, I rationalize income taxes in the United States and the United Kingdom for the 1995-2004 period. I show that only a moderate amount of utility interdependence is su±cient for this. My estimations indicate that the progressivity of tax schedules may be driven by corrective considerations.
    Keywords: optimal non-linear taxation; relative consumption; utility interdependence; rationalization.
    JEL: H21 D62 H23
    Date: 2009–12–08
    Abstract: This paper examines optimal redistribution in a model with high and low-skilled individuals with heterogeneous tastes for labor, that either work or not. With such double heterogeneity, traditional Welfarist criteria including Utilitarianism fail to take the compensation-responsibility trade-off into account. As a response, several other criteria have been proposed in the literature. This paper is the first to compare the extent to which optimal policies based on different normative criteria obey the principles of compensation (for differential skills) and responsibility (for preferences for labor), when labor supply is along the extensive margin. The criteria from the social choice literature perform better in this regard than the traditional criteria, both in first and second best. More importantly, these equality of opportunity criteria push the second best policy away from an Earned Income Tax Credit and in the direction of a Negative Income tax.
    Keywords: optimal income taxation, equality of opportunity, heterogeneous preferences for labor
    JEL: H21 D63
    Date: 2009–10
  4. By: Sanghamitra Bandyopadhyay; Joan Esteban
    Abstract: We introduce a model of redistributive income taxation and public expenditure. This joint treatment permits analyzing the interdependencies between the two policies: one cannot be chosen independently of the other. Empirical evidence reveals that partisan confrontation essentially falls on expenditure policies rather than on income taxation. We examine the case in which the expenditure policy (or the size of government) is chosen by majority voting and income taxation is consistently adjusted. This adjustment consists of designing the income tax schedule that, given the expenditure policy, achieves consensus among the population. The model determines the consensus in- come tax schedule, the composition of public expenditure and the size of government. The main results are that inequality is negatively related to the size of government and to the pro-rich bias in public expenditure, and positively or negatively related to the marginal income tax, depending on substitutability between government supplied and market goods. These implications are validated using OECD data.
    Keywords: Government policy, Income Taxation, Public Expenditure.
    JEL: H23 H50
    Date: 2009–12–14
  5. By: Guglielmo Barone (Bank of Italy); Sauro Mocetti (Bank of Italy)
    Abstract: Tax evasion is a widespread phenomenon and encouraging tax compliance is an important and much debated policy issue. Many studies have shown that tax cheating has to be attributed to a considerable extent to the tax morale of taxpayers. The aim of the present paper is to shed light on the relationship between the taxpayer and the public sector. Specifically, we investigate whether public spending inefficiency shapes individual tax morale. Combining data from Italian municipalities’ balance sheets with individual data from a properly designed survey on tax morale, we find that the attitude towards paying taxes is better when resources are spent more efficiently. This does not appear to be due to some confounding factors at the municipality level or to spatial sorting of citizens. It is also robust to alternative measures of both inefficiency and tax morale.
    Keywords: tax morale, public spending inefficiency
    JEL: D24 H11 H26 H72
    Date: 2009–11
  6. By: Christopher Heady; Åsa Johansson; Jens Arnold; Bert Brys; Laura Vartia
    Abstract: This paper identifies tax policy that both speeds recovery from the current economic crisis and contributes to long-run growth. This is a challenge because short-term recovery requires increases in demand while long-term growth requires increases in supply. As short-term tax concessions can be hard to reverse, this implies that policies to alleviate the crisis could compromise long-run growth. The analysis makes use of recent evidence on the impact of tax structure on economic growth to identify which growth-enhancing tax changes can also aid recovery, taking account of the need to protect those on low incomes.
    Keywords: Taxation; Tax Design; Tax Policy; Economic growth; Economic recovery
    JEL: H20 H30 O40
    Date: 2009–12
  7. By: Jean-Yves Duclos (Département d’économique and CIRPÉE, Université Laval, Canada); Paul Makdissi (Department of Economics, University of Ottawa); Abdelkrim Araar (Département d’économique and CIRPÉE, Université Laval, Canada)
    Abstract: This paper proposes a new methodology to test for whether indirect tax reforms are pro-poor. The methodology extends stochastic dominance techniques and enables identifying tax reforms that will necessarily be deemed absolutely or relatively pro-poor by a wide spectrum of poverty analysts. The statistical properties of the various estimators are also derived in order to make the method implementable using survey data. The methodology is used to assess the pro-poorness of possible reforms to Mexico’s indirect tax system. This leads to the identification of several possible pro-poor tax reforms in that country.
    Keywords: Stochastic dominance, pro-poor changes, tax reforms, indirect taxation, poverty, Mexico
    JEL: D12 D63 H21 I32
    Date: 2009
  8. By: A. Abigail Payne (McMaster)
    Abstract: Although total giving to charities in Canada has increased in the last two decades, the share of tax filers reporting cash donations has fallen, and the sector’s reliance on large donations by wealthy donors has risen. To broaden the donation base, the author suggests creating a single tax-credit rate for cash donations or an RRSP-like charitable gift plan.
    Keywords: charities papers, federal tax policy, Canadian charities
    JEL: H20 D64
    Date: 2009–11
  9. By: Pierre Beynet; Willi Leibfritz
    Abstract: This paper examines various aspects of fiscal policy in Slovenia, in particular fiscal consolidation, pension reform, efficiency of government spending and the tax system. It finds that Slovenia belongs to the group of new EU member countries, which have given in the past a high priority to fiscal prudence. This both stabilised the economy and paved the way for entry to the EU in 2004 and adoption of the euro in 2007. It also created room to counteract the current weakening of the economy. But fiscal policy has to cope with four main challenges: i) ensuring a return to fiscal consolidation after the current economic downturn; ii) achieving longer-term fiscal sustainability by continuing pension reform; iii) limiting growth of public spending and improving its quality; and iv) making the tax system less distorting for job creation and growth. This Working Paper relates to the 2009 OECD Economic Survey of the Slovenia (<P>Assurer la viabilité des finances publiques slovènes<BR>Cet article examine différents aspects de la politique budgétaire de la Slovénie, en particulier l’assainissement budgétaire, la réforme des retraites, l’efficience des dépenses publiques et la fiscalité. La Slovénie peut ainsi disposer d’une marge pour contrecarrer l’affaiblissement actuel de son économie. Mais la politique budgétaire se trouve confrontée à quatre problèmes majeurs : i) faciliter le retour à l’assainissement budgétaire après le ralentissement économique actuel ; ii) assurer la viabilité budgétaire à plus long terme en poursuivant la réforme des retraites ; iii) freiner la croissance des dépenses publiques et améliorer la qualité de ces dépenses ; et iv) faire en sorte que le système fiscal fausse moins la création d’emplois et la croissance. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Slovénie 2009 (études/slovénie).
    Keywords: fiscal policy, fiscal sustainability, generational accounting, pension reform, public spending, Slovenia, taxation, comptabilité générationnelle, copaiement, dépenses publiques, fiscalité, politique budgétaire, réforme du système de retraite, Slovénie
    JEL: H21 H50 H55 H6 H62 H63
    Date: 2009–11–12
  10. By: Ken Tabata (Kwansei Gakuin University)
    Abstract: This paper studies the implications of different fiscal regimes (i.e. centralized vs decentralized) for economic growth and welfare by incorporating Wilson (2005)-type fiscal competition model into a Barro (1990)-type endogenous growth model. We show that fiscal decentralization is more desirable than fiscal centralization for economic growth, when the degree of selfishness of central government bureaucrats is high, and the relative political power of the young to the old is low. We also show that the growth-maximizing fiscal regime is also welfare-maximizing.
    Keywords: Fiscal competition, Decentralization, Leviathan, Overlapping generations
    JEL: H71 H72 E62
    Date: 2009–11
  11. By: Keith Ambachtsheer
    Keywords: Canada Supplementary Pension Plan (CSPP), public pension reform
    JEL: H55 J32
    Date: 2009–11

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