nep-pub New Economics Papers
on Public Finance
Issue of 2010‒09‒03
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Perception : An empirical survey By Fochmann, Martin; Kiesewetter, Dirk; Blaufus, Kay; Hundsdoerfer, Jochen; Weimann, Joachim
  2. Child Benefits in the U.S. Federal Income Tax By Kevin J. Mumford
  3. The Elasticity of Taxable Income in New Zealand By Iris Claus; John Creedy; Josh Teng
  4. Tax buyouts By Marco Del Negro; Fabrizio Perri; Fabiano Schivardi
  5. Distortionary taxation, international business cycles and real wage: explaining some puzzling facts By Francois Langot; Coralia Quintero-Rojas
  6. On the optimality of optimal income taxation By Felix Bierbrauer
  7. The Pareto-Frontier in a simple Mirrleesian model of income taxation By Felix Bierbrauer; Pierre C. Boyer
  8. Optimal Income Taxation and Public-Goods Provision with Preference and Productivity Shocks By Felix Bierbrauer

  1. By: Fochmann, Martin; Kiesewetter, Dirk; Blaufus, Kay; Hundsdoerfer, Jochen; Weimann, Joachim
    Abstract: This paper gives a survey of the experimental literature on the perception (bias) of individuals with respect to their own tax burden and its effect on economic decisions. Six strands of literature are discussed: (1) perception of marginal tax rates, (2) influence of tax complexity on tax perception, (3) taxation and incentives to work, (4) tax salience, (5) tax morale and fairness and (6) money illusion, perceived inflation and fiscal drag. The literature discussed contains more evidence for than against a perception bias. --
    Keywords: taxation,tax perception,literature survey
    JEL: H24 H31
    Date: 2010
  2. By: Kevin J. Mumford
    Abstract: This paper examines changes in, and interactions between, the major components of the U.S. federal tax code that provide substantial child benefits, including stimulus payments that depend on children. The focus is on creating a measure of total child tax benefit by income level, tax filing status, number of children, and year. From this measure, we learn that child tax benefits have more than doubled in real terms since the early 1990s and that low-income families receive larger child tax benefits than high income families for a first or second child, while the reverse is true for a third or fourth child. This paper also provides a case study of a tax policy change that lacked the intended consequences due to interactions between the child-benefit components of the tax code. Finally, this paper considers a comparison of child tax benefits to estimates of the cost of raising children.
    Date: 2010–01
  3. By: Iris Claus; John Creedy; Josh Teng
    Abstract: This paper reports estimates of the elasticity of taxable income with respect to the net-of-tax rate for New Zealand taxpayers. The elasticity of taxable income was estimated to be substantially higher for the highest income groups. Generally it was higher for men than for women. Changes in the timing of income flows for the higher income recipients were found to be an important response to the announcement of a new higher-rate bracket. The marginal welfare costs of personal income taxation were consistent across years, being relatively small for all but the higher tax brackets. For the top marginal rate bracket of 39 per cent, the welfare cost of raising an extra dollar of tax revenue was estimated to be well in excess of a dollar. Furthermore, for the top bracket the marginal tax rate was often found to exceed the revenue-maximising tax rate.
    JEL: H24 H31
    Date: 2010–07
  4. By: Marco Del Negro; Fabrizio Perri; Fabiano Schivardi
    Abstract: The paper studies a fiscal policy instrument that can reduce fiscal distortions, without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each individual citizen, whereby the citizen can choose to pay a fixed price up front in exchange for a given reduction in her tax rate for a prespecified period of time. We consider a dynamic overlapping-generations economy, calibrated to match several features of the U.S. income and wealth distribution, and show that, under simple pricing, the introduction of the buyout is revenue neutral and at the same time can benefit a significant fraction of the population and lead to sizable increases in labor supply, income, consumption, and welfare.
    Keywords: Fiscal policy ; Taxation ; Contracts
    Date: 2010
  5. By: Francois Langot (GAINS-TEPP (Université du Maine)); Coralia Quintero-Rojas (Department of Economics and Finance, Universidad de Guanajuato)
    Abstract: In this paper, we show that fluctuations in distortive taxes can account for most puzzling features of the U.S. economy. Namely, the observed real wage rigidity, the international correlation of investment and labor inputs, and the so-called quantity puzzle (according to which cross-country correlation of outputs is higher than the one of consumptions). This is done in a two-country search and matching model with fairly standard separable preferences, extended to include a tax/benefit system.
    Keywords: Distortive taxes, real wage rigidity, international business cycles, search, matching
    JEL: E32 E62 H24 J41
    Date: 2010–08
  6. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (1993) that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Piketty's critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.
    Keywords: Optimal Income Taxation, Mechanism Design
    JEL: D82 H21 D86
    Date: 2010–04
  7. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn); Pierre C. Boyer (Toulouse School of Economics (GREMAQ) and EHESS)
    Abstract: We characterize the Pareto-frontier in a simple Mirrleesian model of income taxation. We show how the second-best frontier which incorporates incentive constraints due to private information on productive abilities relates to the first-best frontier which takes only resource constraints into account. In particular, we argue that the second-best frontier can be interpreted as a Laer-curve. We also use this second-best frontier for a comparative statics analysis of how optimal income tax rates vary with the degree of inequity aversion, and for a characterization of optimal public-good provision. We show that a more inequity averse policy maker chooses tax schedules that are more redistributive and involve higher marginal tax rates, but chooses a lower public-goods provision level.
    Keywords: Optimal Income Taxation, Public-good provision, Laer-Curve
    JEL: D82 H21 H41
    Date: 2010–05
  8. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We study how an optimal income tax and an optimal public-goods provision rule respond to preference and productivity shocks. A conventional Mirrleesian treatment is shown to provoke manipulations of the policy mechanism by individuals with similar interests. We therefore extend the Mirrleesian model so as to include a requirement of coalition-proofness. The main results are the following: first, the possibility of preference shocks yields a new set of collective incentive constraints. Productivity shocks have no such implication. Second, the optimal policy gives rise to a positive correlation between the public-goods provision level, the extent of redistribution and marginal tax rates.
    Keywords: Public Goods, Optimal Taxation, Mechanism Design
    JEL: D71 D82 H21 H41
    Date: 2010–05

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