New Economics Papers
on Public Finance
Issue of 2010‒09‒25
four papers chosen by

  1. Taxing Human Capital: A Good Idea By Christoph Braun
  2. Differential Income Taxation and Household Asset Allocation By Richard Ochmann
  3. The effect of sales tax holidays on household consumption patterns By Nathan Marwell; Leslie McGranahan
  4. The incidence of Payroll Taxes in Ontario and Quebec; Evidence from collective agreements for 1985-2007 By Edison Roy César; François Vaillancourt

  1. By: Christoph Braun
    Abstract: This paper studies a Ramsey optimal taxation model with human capital in an infi nite-horizon setting. Contrary to Jones, Manuelli, and Rossi (1997), the human capital production function does not include the current stock of human capital as a production factor. As a result, the return to human capital, namely labor income, does not vanish in equilibrium. In a stationary state, the household underinvests in human capital relative to the fi rst best, i.e., education is distorted. Human capital is eff ectively taxed. The optimal tax scheme prescribes making the cost of education not fully tax-deductible.
    Keywords: Optimal taxation; human capital; Ramsey approach
    JEL: H21 I28 J24
    Date: 2010–09
  2. By: Richard Ochmann
    Abstract: This paper empirically investigates the effects of differential income taxation on households' portfolio choice and asset allocation applying a two-stage budgeting model of asset demand to German survey data. The model is structured into the discrete asset choice and the continuous asset choice, and the marginal income tax rate is simulated in a module of income taxation. Households that face relatively higher tax rates are found to have relatively greater demand for tax-privileged assets than households in the lower tax brackets. The higher the marginal tax rate the greater demand is for non-owner-occupied housing, for mortgage repayments, for building society deposits, for stocks, for insurances, and for consumer credits, whereas demand is lower for owner-occupied housing, bank deposits, and bonds.
    Keywords: Household asset allocation, portfolio choice, two-stage budgeting, capital income taxation
    JEL: C35 G11 H31
    Date: 2010
  3. By: Nathan Marwell; Leslie McGranahan
    Abstract: Sales tax holidays (STHs) are the temporary suspension of state (and some local) sales taxes on selected retail items for a brief period of time. The policy has gained popularity in recent years, beginning in one state in 1997 and growing to twenty by 2008. Despite the increased frequency with which states use STHs, little research has been conducted to study how households respond to this temporary tax manipulation. Our paper offers the first household-level, microeconometric evaluation on the effect of STHs on household consumption patterns. We find that on STHs, households increase the number of clothing and shoes bought by over 49 percent and 45 percent, respectively, relative to what they buy on average. Further, we find that this increase in consumption is limited to children’s apparel and that the wealthiest households and households consisting of married parents and young children have the largest, statistically significant response to STHs; for example, households with incomes over $70,000 increase the number of children’s clothing items purchased by 136 percent, while households that consist of married parents and young children increase the amount spent on children’s clothing and shoes by 117 percent and 295 percent, respectively.
    Keywords: Consumption (Economics) ; Households - Finance ; Sales tax
    Date: 2010
  4. By: Edison Roy César; François Vaillancourt
    Abstract: This study uses an original data set, combining information for all collective agreements covering more than 500 employees signed in Quebec or Ontario from 1985 to 2007 and information on payroll taxes and other variables, to measure the incidence of an increase in payroll tax. The results of this model show that that after one year, a one percentage point increase in the general payroll tax reduces wages growth by 1/2 of a percentage point in Quebec and 3/10 of a point in Ontario. <P>Cette étude utilise une base de données originale regroupant les conventions collectives couvrant plus de 500 employés signées au Québec ou en Ontario de 1985 `à 2007 et des informations sur les taxes sur la masse salariale et d’autres variables, afin de mesurer l’effet d’une augmentation de taxe sur la masse salariale. Les résultats de ce modèle indiquent qu’après un an, une augmentation d’un point de pourcentage des taxes générales sur la masse salariale fait diminuer la croissance des salaires de 1/2 point de pourcentage au Québec et 3/10 de point de pourcentage en Ontario.
    Keywords: Payroll taxes, incidence, collective agreements, wages, Taxe sur la masse salariale, incidence, conventions collectives, salaires
    JEL: H22 H24 H32 J32 J38
    Date: 2010–09–01

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