nep-pub New Economics Papers
on Public Finance
Issue of 2010‒04‒11
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the political economy of tax limits By Stephen Calabrese; Dennis Epple
  2. Tax compliance under tax regime changes By Heinemann, Friedrich; Kocher, Martin G.
  3. Is agglomeration taxable? By Jordi Jofre-Monseny
  4. Taxing Our Neighbors? Why Some Sub-National Revenues Are So Small By Jorge Baldrich
  5. The Provision of Public Goods with Positive Group Interdependencies By Werner Güth; Lauri Sääksvuori

  1. By: Stephen Calabrese (Carnegie Mellon University); Dennis Epple (Carnegie Mellon University)
    Abstract: We study the political economy of state limitations on the taxing powers of local governments, investigating the effects of such restriction on housing markets, community composition, and types of taxes and expenditures undertaken by local governments. We characterize equilibrium when voters choose values of multiple policy (tax and expenditure) instruments, finding that tax limitations have very substantial effects on housing prices and the composition of communities. Political support for tax limits comes from suburban voters and from a subset of central-city voters. Support for tax limits come even from residents of communities that are not constrained by the limits.
    Keywords: Tax limits, redistribution, public goods, property tax, income tax, head tax
    JEL: D72 D78 H30 H42 H72 H73
    Date: 2010
  2. By: Heinemann, Friedrich; Kocher, Martin G.
    Abstract: In this paper we focus on the compliance effects of tax regime changes. According to the economic model of tax evasion, a tax reform should affect compliance through its impact on tax rates and incentives. Our findings demonstrate the importance of at least two further effects not covered by the traditional model: First, reform losers tend to evade more taxes after the reform. Second, a reform from a proportionate to a progressive system decreases compliance compared to a switch in the reverse direction. However, the level of compliance is generally higher under a progressive than under a proportionate regime.
    Keywords: tax reforms; tax compliance; experiment
    JEL: C72 C91 H26
    Date: 2010–03
  3. By: Jordi Jofre-Monseny (University of Barcelona & IEB)
    Abstract: Several theoretical papers that examine tax competition with agglomeration effects have stressed the possibility that the governments of jurisdictions in which economic activity is concentrated may tax firms more heavily (taxable agglomeration rents). In this paper, we examine the tax rate setting decisions taken with regard to the Spanish municipal business tax (Impuesto sobre Actividades Económicas). The analysis, carried out with a sample of 2,772 municipalities, focuses on the effect that urbanization economies, localization economies and the market potential of municipalities have on their business tax rates. High urbanization economies and high localization economies are found to increase the business tax rate. Although the evidence is weaker, the results also indicate that municipalities with better access to demand (of consumers) set higher tax rates
    Keywords: Local taxes, agglomeration economies, tax competition
    JEL: H3 H7 R
    Date: 2010
  4. By: Jorge Baldrich (Department of Economics, Universidad de San Andres)
    Abstract: This paper analyzes the determinants of local government revenues and the incentives faced by politicians in the design of tax policy. The decision of deepening local tax collections carries costs and benefits for local politicians. Balancing in the margin these costs and benefits allows for an endogenous determination of the taxing level. The paper stresses the role of markets size in determining politicians’ incentives to enact a tax regime. In addition, we provide a rationale for the central government-local government tax ratio as a key tax effort variable. Furthermore, local levels of income inequality are relevant in explaining tax collections.
    Keywords: tax, sub-national revenues
    Date: 2010–03
  5. By: Werner Güth (Max Planck Insitute of Economics, Jena); Lauri Sääksvuori (Max Planck Insitute of Economics, Jena)
    Abstract: This article examines the nature of human behavior in a nested social dilemma referred to as the Spillover Game. Players are divided into two groups with positive production interdependencies. Based on theoretically derived opportunistic, local, and global optima, our experimental results demonstrate the importance of in-group beneficiaries over global efficiency. We find that the observed behavior is primarily determined by an imperfect conditional cooperation that prioritizes local level feedback. Results stress the importance of building strong local level commitment to encourage the provision of public goods with positive externalities.
    Keywords: Public good, experiment, groups, Spillover Game, social dilemma
    JEL: H41 C72 C91 C92
    Date: 2010–03–25

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