nep-pub New Economics Papers
on Public Finance
Issue of 2010‒02‒13
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Inequality and fiscal policy.. By Stewart, Frances; Venugopal, Rajesh
  2. Taxation and the Earnings of Husbands and Wives By Gelber, Alexander
  3. Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours By Bloemen, Hans
  4. Capital Decay and Tax Distortions: How to Abandon Exponential Decay and Benefit from It By Biørn, Erik

  1. By: Stewart, Frances; Venugopal, Rajesh
    Abstract: Properly designed, fiscal policies can be effective tools for redressing social and economic inequality.
    Date: 2009–03
  2. By: Gelber, Alexander
    Abstract: This paper examines the response of husbands' and wives' earnings to a tax reform in which husbands' and wives' tax rates changed independently, allowing me to examine the effect of both spouses' incentives on each spouse's behavior. I compare the results to those of more simplified econometric models that are used in the typical setting in which such independent variation is not available. Using administrative panel data on approximately 11% of the married Swedish population, I analyze the impact of the large Swedish tax reform of 1990-1. I find that in response to a compensated rise in one spouse's tax rate, that spouse's earned income rises, and the other spouse's earned income also rises. I test and reject a set of models in which the family maximizes a single utility function. A standard econometric specification, in which one spouse reacts to the other spouse's income as if it were unearned income, yields biased coefficient estimates. Uncompensated elasticities of earned income with respect to the fraction of income kept after taxes are over-estimated by a factor of more than three, and income effects are of the wrong sign. A second common specification, in which overall family income is related to the family's tax rate and income, also yields substantially over-estimated own compensated and uncompensated elasticities. Standard econometric approaches may substantially mis-estimate earnings responses to taxation.
    Keywords: taxation; earnings; labor supply; families; spouses; unitary model
    JEL: H21 H31 J21 H24 J22 J12 J16
    Date: 2010–01
  3. By: Bloemen, Hans (VU University Amsterdam)
    Abstract: Most empirical studies on the impact of labour income taxation on the labour supply behaviour of households use a unitary modelling approach. In this paper we empirically analyze income taxation and the choice of working hours by combining the collective approach for household behaviour and the discrete hours choice framework with fixed costs of work. We identify the sharing rule parameters with data on working hours of both the husband and the wife within a couple. Parameter estimates are used to evaluate various model outcomes, like the wage elasticities of labour supply and the impacts of wage changes on the income sharing between husband and wife. We also simulate the consequences of a policy change in the tax system. We find that the collective model has different empirical outcomes of income sharing than a restricted model that imposes pooling of men's earnings and the household's non-labour income in the female's budget constraint. These differences in outcomes have consequences for the evaluation of a policy change in the tax system.
    Keywords: labour supply, household behaviour, collective model, taxation
    JEL: J22
    Date: 2010–01
  4. By: Biørn, Erik (Dept. of Economics, University of Oslo)
    Abstract: The appropriate way of quantifying how taxation of a firm's income and capital can distort its optimizing conditions is a recurring issue in the literature on optimal taxation. Exponential decay, although empirically contested, is almost ubiquitous. In the present paper a generalized framework which allows for a general, non-exponential, decay pattern for both true and tax-permitted depreciation, is considered. Both convex and concave survival functions can be accommodated. Three capital concepts are involved, two of which coincide under exponential decay. The trade-off between various departures from neutrality is illustrated. Elements which contribute to non-neutrality are: (i) discrepancy between the defnition of the tax-relevant accounting capital and true depreciation, (ii) mis-indexation of depreciation allowances, (iii) incomplete deductibility of interest costs, (iv) asymmetric treatment of interest costs and capital gains, and (v) taxation of the value of the capital stock. Finally, we show that substantial biases can arise in assessing the degree of non-neutrality if non-exponential depreciation schedules are forced, by `approximation devices', to ft into the exponential decay schedule.
    Keywords: Capital taxation; Taxable income; Tax-neutrality; Tax distortion; Survival func- tion; Capital service price; Non-exponential decay; Depreciation; Indexation
    JEL: D61 E22 H21 H25
    Date: 2009–12–28

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