nep-pub New Economics Papers
on Public Finance
Issue of 2010‒06‒04
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Morale, Tax Evasion, and the Shadow Economy By Gebhard Kirchgässner
  2. Tax evasion in a principal-agent model with self-protection By Biswas, Rongili; Marchese, Carla; Privileggi, Fabio
  3. The Incentives for Tax Planning By Armstrong, Christopher S.; Blouin, Jennifer L.; Larcker, David F.
  4. Taxing risk and the optimal regulation of financial institutions By Narayana Kocherlakota
  5. Company Car Taxation By Copenhagen Economics
  6. Fuel Tax Incidence and Supply Conditions By Marion, Justin; Muehlegger, Erich
  7. The Norwegian Shareholder Tax Reconsidered By Södersten, Jan; Lindhe, Tobias
  8. The Poverty of States: Do State Tax Policies Affect State Labor Productivity? By McPhail, Joseph E.; Orazem, Peter; Singh, Rajesh
  9. Single-dipped preferences By Salvador Barberà; Dolors Berga; Bernardo Moreno

  1. By: Gebhard Kirchgässner
    Abstract: Under which conditions is moral justification of taxation possible? This question does not only interest philosophers and economists from a scientific point of view, but can have considerable practical relevance as well because the willingness of citizens to pay taxes may depend upon whether they consider taxation to be morally justified or not. We first consider theoretical arguments on the role of tax morale, and when tax evasion might be considered as justified by citizens or not. Then we ask how tax morale can be measured. Next, we discuss the role of tax morale for the shadow economy, before determinants of tax morale and empirical results for the impact of tax morale on tax compliance are discussed. For a high tax morale, institutional and cultural factors are at least as important as economic incentives.
    Keywords: Tax morale, tax evasion, principles of taxation, trust, direct democracy, federalism
    JEL: H20 H26
    Date: 2010–05
  2. By: Biswas, Rongili; Marchese, Carla; Privileggi, Fabio
    Abstract: Gatekeepers have an increasing role in taxation and regulation. While burdening them with legal liability for misconducts that benefit those who resort to their services actually discourages wrongdoings — as will be clarified in the paper — an alienation effect can also arise. That is, the gatekeeper might become more interested in covering up the illegal behavior and in cooperating with the perpetrator. Such perverse effects are difficult to detect and to measure. This paper studies the problem with respect to tax evasion by firms, by building upon the classical Allingham and Sandmo (1972) model and by providing a more detailed description of the "concealment costs" than that available in the literature, which often simply makes assumptions about their existence and their functional form. The relationship between a risk neutral firm owner aiming at evading taxes and a risk averse gatekeeper is described through a simple principal-agent framework. The paper highlights the role of legal rules pertaining to liability for tax evasion in shaping the parties choices, since concealment costs vary according to whether the risk neutral principal or the risk averse agent are held responsible when tax evasion is detected. The main result of the analysis is that there are simple conditions under which one can easily infer whether harnessing the agent is socially beneficial.
    Keywords: tax evasion, firm, agency, risk aversion
    JEL: H26 H32 D81 K42
    Date: 2009–12
  3. By: Armstrong, Christopher S. (University of Pennsylvania); Blouin, Jennifer L. (University of Pennsylvania); Larcker, David F. (Stanford University)
    Abstract: Recent research argues that differences in the structure of top executive compensation plans and/or corporate culture explain cross-sectional variation in tax avoidance. However, this research does not link tax planning to the incentives of the specific executive managing the tax function in the firm. We use a proprietary data set with detailed executive compensation to examine the relation between the incentives of the tax director and the book-tax gap, financial and cash effective tax rates, and measures of tax aggressiveness. We find that the incentives of the tax director exhibit a strong negative relation with the financial effective tax rate, but little relation with the other tax attributes. We interpret these results as indicating that tax directors are provided with incentives to generate a favorable impact to the financial statements.
    JEL: H25 M41 M52
    Date: 2009–06
  4. By: Narayana Kocherlakota
    Abstract: Knowing that bailouts are inevitable because governments will rescue firms whose collapse may cause systemic failure, financial institutions fail to internalize risks their investments impose on society, thereby creating a “risk externality.” This paper proposes that just as taxes are imposed to deal with pollution externalities, taxes can also address risk externalities. ; The size of the optimal tax depends on risk-related attributes and may be difficult for supervisors to calculate and implement. A market-based method can estimate its appropriate magnitude. For a particular financial institution, the government should sell “rescue bonds” paying a variable coupon linked to the size of the bailouts or other government assistance received by the institution or its owners. Coupon prices will reflect the market’s judgment of an institution’s risk profile and can therefore be used to set the tax. ; A well-designed tax system can entirely eliminate the risk externality generated by inevitable government bailouts.
    Keywords: Financial crises ; Taxation ; Risk ; Regulation
    Date: 2010
  5. By: Copenhagen Economics
    Abstract: This study presents new, nearly EU wide estimates of the level of subsidies to company cars. In addition, it also provides some preliminary rough illustrations of the possible effects of such subsidies on economic welfare and environment and discusses the policy implications.
    Keywords: taxation, car taxation, subsidies, environment
    JEL: H22 H23 H25 H31 H32 H54
    Date: 2010–06
  6. By: Marion, Justin (University of California, Santa Cruz); Muehlegger, Erich (Harvard University)
    Abstract: In this paper, we provide new evidence regarding the pass-through of diesel and gasoline taxes to prices, and how the estimated pass-through depends on a variety of supply conditions including a measure of state residual supply elasticity, and refinery and inventory constraints. In addition, we estimate the response of tax incidence to gasoline content regulations, which complicate the supply chain by increasing product heterogeneity. We find that state gasoline and diesel taxes are on average fully passed on to consumers. We also find that the pass-through of diesel taxes is greater in settings where untaxed uses of diesel are more important, which corresponds to times when residual supply is more elastic. We find that only half of the state diesel tax is passed on to consumers when U.S. refinery capacity utilization is above 95 percent. Gasoline taxes, on the other hand, are fully passed through regardless of season or capacity utilization, indicating that a gas tax holiday would provide price relief to consumers. We find that regional gasoline content regulations affect pass-through--we estimate tax pass-through is 22 percentage points lower in a state using two blends of gasoline than a state using one blend of gasoline.
    Date: 2010–04
  7. By: Södersten, Jan (Uppsala Center for Fiscal Studies); Lindhe, Tobias (Uppsala Center for Fiscal Studies)
    Abstract: In an article in International Tax and Public Finance, Peter Birch Sørensen (2005) gives an in-depth account of the new Norwegian Shareholder Tax, which allows the shareholders a deduction for an imputed risk-free rate of return. Sørensen’s positive evaluation appears as reasonable for a closed economy where the deduction for the imputed return is capitalized into the market prices of corporate shares. We show that in a small open economy where no capitalization occurs, the Norwegian shareholder tax is likely to leave the distortions caused by the corporate income tax unaffected, and to add new distortions to shareholders’ portfolio decisions.
    Keywords: Tax neutrality; open economy; shareholder taxation; corporate-personal tax integration; small firms
    JEL: H24 H25
    Date: 2010–05–25
  8. By: McPhail, Joseph E.; Orazem, Peter; Singh, Rajesh
    Abstract: There are substantial differences in output per worker across states that persist over time.  This study demonstrates that differences in state taxation of capital income, capital ownership, and consumption can explain why differences in labor productivity can persist.  First, state tax policies persist with little change in the taxes imposed over time.  Second, sales, property, and capital income taxes will all lower equilibrium labor productivity in the context of a neoclassical growth model.  The most negative effects occur at the highest marginal tax rates.  These theoretical predictions are supported, using data on state marginal tax rates and output per worker over the 1977-2004 sample period.  Over that period, the mix of state tax policies has led to a reduction in labor productivity averaging almost 20% per year.  The implied adverse effect of tax distortions on labor productivity across states is substantial, varying from -11.8% in Nevada to -27.6% in Iowa.  State tax policies have become increasingly damaging to labor productivity over time as states have increased their marginal tax rates.  On the other hand, government expenditure policies explain none of the variation in labor productivity across states or time.  
    Keywords: states; tax efficiency; Property tax; sales tax; corporate tax; income tax; capital gains tax; Solow growth model; labor productivity
    JEL: H2 H3 H7
    Date: 2010–05–26
  9. By: Salvador Barberà; Dolors Berga; Bernardo Moreno
    Abstract: We characterize the set of all individual and group strategy-proof rules on the domain of all single-dipped preferences on a line. For rules defined on this domain, and on several of its subdomains, we explore the implications of these strategy-proofness requirements on the maximum size of the rules' range. We show that when all single-dipped preferences are admissible, the range must contain two alternatives at most. But this bound changes as we consider different subclasses of single-dipped preferences: we provide examples of subdomains admitting strategy-proof rules with larger ranges. We establish exact bounds on the maximal size of strategy-proof functions on each of these domains, and prove that the relationship between the sizes of the subdomains and those of the ranges of strategy-proof functions on them need not be monotonic. Our results exhibit a sharp contrast between the structure of strategy-proof rules defined on subdomains of single-dipped preferences and those defined on subsets of single-peaked ones.
    Keywords: strategy-proof, group strategy-proof, binary range rules, single-dipped
    JEL: D71
    Date: 2009–12–31

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