nep-pub New Economics Papers
on Public Finance
Issue of 2010‒02‒27
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Can more revenue be raised by increasing income tax rates for the very rich?. By Brewer, M.; Browne, J.
  2. Income taxes, compensating differentials, and occupational choice: how taxes distort the wage-amenity decision By Hui Shan; David Powell
  3. Payroll Taxes, Wages and Employment: Identification through Policy Changes By Guillermo Cruces; Sebastian Galiani; Susana Kidyba
  4. Earnings Determination and Taxes: Evidence from a Cohort Based Payroll Tax Reform in Greece By Saez, Emmanuel; Matsaganis, Manos; Tsakloglou, Panos
  5. Understanding the compliance costs of benefits and tax credits. By Bennett, F.; Brewer, M.; Shaw, J.
  6. What drives gasoline taxes?. By Dunkerley, Fay; Glazer, Amihai; Proost, Stefan
  7. Tax Devolution and Grant Distribution to States in India Analysis and Roadmap for Alternatives By R Mohan; Shyjan D

  1. By: Brewer, M.; Browne, J.
    Abstract: This Briefing Note discusses how much scope there is to raise revenue from the very rich by increasing income tax rates and assesses in detail the amount of revenue that is likely to be raised by the government's proposed reforms. It extends analysis presented in the 2009 IFS Green Budget and updates some calculations in a submission to the Mirrlees Review. It also discusses information recently released by HM Treasury and HM Revenue & Customs concerning their methodology for calculating how much revenue these reforms will raise. The Briefing Note shows that there is considerable uncertainty over the revenue that could be raised from the very rich by increasing income tax rates, both because we cannot be certain about the distribution of incomes above £100,000 and because we cannot be certain how those affected will respond to the tax increase. It goes on to discuss under what conditions the measures in PBR 2008 could yield as much revenue as the Treasury is forecasting.
    Date: 2009–04
  2. By: Hui Shan; David Powell
    Abstract: The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they also distort the wage-amenity decision. Yet, there are no estimates of the full response on this margin. When tax rates increase, workers favor jobs with lower wages and more non-taxable amenities. We introduce a two-step methodology which uses compensating differentials to characterize the tax elasticity of occupational choice. We estimate a significant compensated elasticity of 0.05, implying that a 10% increase in the net-of-tax rate causes workers to change to a 0.5% higher wage job.
    Date: 2010
  3. By: Guillermo Cruces (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - Universidad Nacional de La Plata y CONICET); Sebastian Galiani (Washington University in Saint Louis - United States.); Susana Kidyba (Instituto Nacional de Estadística y Censos (INDEC) - Argentina)
    Abstract: This paper investigates the effect of changes in payroll taxes on wages and employment in Argentina. The analysis, based on administrative data, focuses on the impact of a series of major changes in payroll taxes which varied across geographical areas. This setup offers two main advantages over previous studies. First, using longitudinal data, the variation in tax rates across space and time provides a plausible source of identification of their effects on employment and wages. Second, the use of legal tax rates for each area at each point in time provides a remedy for the measurement error bias raised by the use of empirical rates constructed from observed tax and wage bills. Once this bias is accounted for, the results indicate that changes in payroll tax rates are only partially shifted onto wages, and they point to the absence of any significant effect on employment.
    Keywords: Argentina, payroll taxes, employment, wages
    Date: 2010–01
  4. By: Saez, Emmanuel (University of California, Berkeley); Matsaganis, Manos (Athens University of Economics and Business); Tsakloglou, Panos (Athens University of Economics and Business)
    Abstract: This paper analyzes the response of earnings to payroll tax rates using a cohort-based reform in Greece. All individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes, creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers. Using full population administrative Social Security data and a Regression Discontinuity Design, we estimate the long-term incidence and effects of marginal payroll tax rates on earnings. Standard theory predicts that, in the long run, new regime workers should bear the entire burden of the payroll tax increase (relative to old regime workers). In contrast, we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes. We do not find any evidence of labor supply responses around the discontinuity, suggesting low efficiency costs of payroll taxes. The non-standard incidence results are the same across firms of different sizes. Tax incidence, however, is standard for older workers in the new regime as they bear both the employee and employer tax. Those results, combined with a direct small survey of employers, can be explained by social norms regarding pay seniority which create a growing wedge between pay and productivity as workers age.
    Keywords: payroll taxes, Greece
    JEL: J31 J22 H22
    Date: 2010–02
  5. By: Bennett, F.; Brewer, M.; Shaw, J.
    Abstract: This report describes a scoping study to understand more about the nature of the 'costs of compliance' that claimants of social security benefits and (personal) tax credits incur, and discusses possible ways of measuring such costs. 'Costs of compliance' refers to the costs - time, money and psychological costs - that are imposed on applicants for, and recipients of, benefits and tax credits and on others by meeting all the various requirements placed on them by social security and tax credit law and statutory authorities. Our main purpose in this report is to make the case for taking compliance costs into account in considering the impact of, and changes to, benefits and tax credits. The study aimed to investigate the extent to which the principles underlying methods of establishing 'costs of compliance' in other areas can be applied to applicants for, and recipients of, benefits and tax credits. These existing methods include valuing individuals' and companies' administrative costs of complying with the tax authorities; valuing companies' costs in complying with government regulations; and estimating the time spent by individuals in complying with government regulations of various kinds. But we also think it is important for governments to consider claimants' own perceptions and priorities in terms of the 'costs of compliance'. Currently, the government recommends that cost-benefit analysis should be used when assessing the impact of potential policy changes and it produces guidance for departments on how to put this into practice. New impact assessments have been introduced recently, which, in principle, should take into account the monetary value of all the effects of changes, including allocating a value to non-market items such as people's time. This kind of assessment should therefore include analysis of the 'costs of compliance' for benefits and tax credits claimants. In practice, however, impact assessments do not usually include such exercises. It is important to know about the scale and distribution of the compliance costs of benefits and tax credits, as well as taxes, for several reasons. Time spent by recipients fulfilling their obligations cannot be spent engaged in other activities; a more rounded measure of the productivity of the benefits and tax credits system would include such costs; and we could understand more about the reasons behind non-take-up of entitlements. There could be advantages, too, in terms of improving citizens' relationship with government. A concern about the 'burdens on citizens' imposed by their interactions with government is now moving quickly up the policy agenda in the UK, and a few attempts to measure claimants' compliance costs were initiated whilst this scoping study was being undertaken. Within the European Union, member states have also begun to exchange information and experiences about reducing burdens on citizens more generally. The Netherlands has developed both its policies and its measurement methods further than many other countries. This is a scoping study and does not set out to measure the costs of compliance incurred by benefits and tax credits claimants. Instead, it explores the nature of the costs of compliance for claimants of benefits and tax credits; assesses whether such costs can be measured and, if so, to what extent; and discusses whether impact assessments of policy changes could include such measurements. We also hope that this report will act as a catalyst for the further development of these techniques to improve policy assessment in the benefits and tax credits systems.
    Date: 2009–07
  6. By: Dunkerley, Fay; Glazer, Amihai; Proost, Stefan
    Abstract: Gasoline taxes are the most important tax on car use. The question naturally arises as to what tax would be adopted by a government that responds to the preferences of the public. To address that issue, we begin with the standard Downsian model, where policy is determined by the median voter. This model predicts that as long as the median voter is not a car user, he wants high taxes on road use and a road capacity that maximizes net tax revenues. When he becomes a driver himself, he wants road user taxes that are lower and only increase to control congestion, as well as more road capacity. We then use panel data for 28 countries and find support for our theory. When the median voter becomes a driver, the gasoline tax drops on average by 20%.
    Date: 2010
  7. By: R Mohan; Shyjan D
    Abstract: The paper attempts to analyse the impact of devolution of taxes and distribution grants by the Centre to the States in India by taking fourteen major States for the time period 1980-81 to 2006-07. The study focuses on the impact of inter- State distribution of Central grants and taxes. Analysis reveals that formula based tax devolution has been more equalising than grants. Study finds that there is need to explore alternative mechanisms. [WP 419].
    Keywords: India, vertical and horizontal inmalance, finance commission, Gross Domestic Product, GDP, state, GSDP, service tax, indirect taxes, direct, central excise, revenue, devolution, taxes, grants, centre, states, distribution, taxes, devolution,
    Date: 2010

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