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on Public Finance |
| By: | Robert P. Inman |
| Abstract: | The 2007-2010 recession has imposed significant fiscal hardships on state and local governments. The result has been state deficits and the need to increase state taxes, cut spending, and withdraw funds from state rainy day accounts. The primary cause of state budget “gaps” has been the rise in the level of state unemployment. There is no evidence that gaps are related to state political institutions, the state’s prior receipt of federal funding, or possibly favored access to key congressional budget committees. The federal government has responded to these gaps with the passage of the American Recovery and Reinvestment Act (ARRA) of 2009 intended to aid states in fiscal distress and to provide an economic stimulus. As insurance for fiscal distress, ARRA covers at most $.23 of each additional dollar of a state’s budget gap; there is a large per capita payment that goes to all states, independent of the level of state deficits. As targeted assistance for stimulating local economies, ARRA funding is uncorrelated with state unemployment rates. ARRA funding appears to be decided by congressional politics, given the desire to pass a major spending and tax relief package as quickly as possible. States are important “agents” for federal macro-policy, but agents with their own needs and objectives. |
| JEL: | H71 H77 H81 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16086&r=pub |
| By: | Johannes Becker (Max PLanck Institute for Intellectual Property Munich); Marco Runkel (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | Would the introduction of a corporate tax system with consolidated tax base and formula apportionment lead to socially wasteful mergers and acquisitions across borders? This paper analyzes a two-country model with an international investor considering acquisitions of already existing target firms in a high-tax country and a low-tax country. The investor is able to shift profits from one location to another for tax saving purposes. Two systems of corporate taxation are compared, a system with separate accounting and a system with tax base consolidation and formula apportionment. It is shown that, under separate accounting, the number of acquisitions is inefficiently ciently high in both the high tax and the low tax country. Under formula apportionment, the number of acquisitions is inefficiently ciently high in the low tax country and inefficiently ciently low in the high tax country. Under tax competition, a novel externality arises that worsens the effciency; ciency properties of equilibrium tax rates under separate accounting, but may play an effciency; ciency enhancing role under formula apportionment. |
| Keywords: | Corporate Taxation, Separate Accounting, Formula Apportionment |
| JEL: | H25 F23 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:100014&r=pub |
| By: | Torben M. Andersen (School of Economics and Management, Aarhus University, Denmark); Allan Sørensen (School of Economics and Management, Aarhus University, Denmark) |
| Abstract: | It is widely perceived that globalization is a threat to tax financed public sector activities. The argument is that public activities (public consumption and transfers) financed by income taxes distort labour markets and cause higher wages and thus a loss of competitiveness. Since this link is strengthened by globalization, it is inferred that the marginal costs of public funds increase and a retrenchment of the public sector follows. We challenge whether these conclusions have support in a general equilibrium model featuring standard effects from open macroeconomics and trade theory. Even though income taxation unambiguously worsens wage competitiveness, it does not follow that marginal costs of public funds increase with product market integration due to gains from trade. Moreover, non-cooperative fiscal policies do not have a race-to-the-bottom bias despite that taxes harm competitiveness. In fact we identify an expansionary bias in ?scal policies that is likely to increase with globalization when taxes finance either public consumption or transfers. |
| Keywords: | labour taxation, open economy, policy spill-over, marginal costs of public funds |
| JEL: | H2 F1 J22 |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2010-09&r=pub |
| By: | Furceri, Davide; Karras, Georgios |
| Abstract: | This paper investigates the effects of economic size and trade openness on tax design in the OECD. Using data for thirty OECD countries over the 1965-2007 period, we test the recently proposed Hines-Summers [2009] Hypothesis, according to which the smaller the size and the greater the openness of the economy, the more it will rely on expenditure taxes and the less on income taxes. Our findings show that the Hines-Summers Hypothesis can claim broad, statistically significant, and robust empirical support in the OECD data sets we examined. |
| Keywords: | Income tax; Consumption tax; Country size; Trade openness |
| JEL: | H20 E60 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23358&r=pub |
| By: | Laszlo Paizs (Institute of Economics - Hungarian Academy of Sciences) |
| Abstract: | This paper tests new implications of the asymmetric tax competition model on diesel excise taxes in the European Union (EU). I extend the standard tax competition model by replacing the unit demand assumption with iso-elastic demand. As a result, not only the level of the equilibrium tax but also the slope of the tax reaction function depends positively on the size of the country. The new implication is testable on panel data in first differences, and it is tested on a panel of 16 European countries. The results provide strong evidence for strategic interaction in the setting of diesel excises and confirm the effect of country size on the response to tax changes in neighboring countries. Strategic interaction between EU countries intensified in the mid 1990s and drove small European countries to set lower diesel tax rates. These results explain why the EU's minimum tax policy has failed to harmonize diesel tax rates across member states. |
| Keywords: | tax competition, minimum tax, asymmetric regions, diesel excise, European Union |
| JEL: | H70 H77 H87 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1012&r=pub |
| By: | Ilona Kovacs (Institute of Economics - Hungarian Academy of Sciences) |
| Abstract: | This study surveys various views on income distribution and income inequality and presents alternative approaches to and analytical methods of measuring income inequality. In contrast to traditional income distribution analyses, the author examines the development of income distribution and income inequality for a period between 1996 and 2004, following the change in the regime, based on personal income (consolidated income subject to general tax rates and total income including income subject to separate tax rates) declared to the Hungarian Tax and Financial Control Administration (APEH). A follow-up to this work based on similar data available up to the year 2007 is forthcoming. Based on income surveys by the Hungarian Central Statistical Office (KSH), the ratio of the income of the top tenth of the population to the bottom tenth of the population doubled from 4.6 to 9.2 between 1987 and 1997. Analyses for years following 1996 (TµRKI, Institute of Economics) show that income inequality did not increase considerably following that year; it essentially stagnated with nothing more than internal structural changes taking place. The results obtained based on data from personal income tax returns contradict these findings, as income inequality has further increased since, while the extent of income inequality itself was also considerably larger. Based on her conclusions, the author formulates important economic policy recommendations. She sees taxation, inflation, demographic changes, and changes in the structure of ownership and the way privatization took place as the leading causes behind these changes in income distribution and income inequality which were extensive by international standards. |
| Keywords: | income distribution, income inequalities |
| JEL: | D31 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1011&r=pub |