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on Public Finance |
| By: | Laurence JACQUET (Norvegian School of Economics and Business Administration , CESifo, Hoover Chair and IRES - Université Catholique de Louvain); Etienne LEHMANN (CREST-INSEE, IRES - Université Catholique de Louvain, IZA and IDEP); Bruno VAN DER LINDEN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)) |
| Abstract: | We derive a general optimal income tax formula when individuals respond along both the intensive and extensive margins and when income effects can prevail. Individuals are heterogeneous across two dimensions: their skill and their disutility of participation. Preferences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition being imposed. Employing a new tax perturbation approach that integrates the nonlinearity of the tax function into the behavioral elasticities, we derive a fairly mild condition for optimal marginal tax rates to be nonnegative everywhere. Numerical simulations using U.S. data confirm the mildness of our conditions. The extensive margin strongly reduces the level of optimal marginal tax rates. |
| Keywords: | Optimal tax formula, Tax perturbation, Random participation |
| JEL: | H21 H23 |
| Date: | 2010–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2010033&r=pub |
| By: | Blaufus, Kay; Bob, Jonathan; Hundsdoerfer, Jochen; Kiesewetter, Dirk; Weimann, Joachim |
| Abstract: | In this paper we apply conjoint analysis to study the influence of changes in the tax rate and the tax base on the perceived tax burden. Our results show that the majority of individuals do not make rational tax decisions based on the actual tax burden, but rather use simple decision heuristics. This leads to the importance of the tax rate being significantly overestimated and the importance of the tax base being significantly underestimated. Furthermore we determine framing effects and show that under specific assumptions, a rise in the actual tax burden can lead to a electoral success. -- |
| Keywords: | behavioral public finance,decision heuristics,framing effects,perceived tax burden,tax-cut-cum-base-broadening,tax complexity,tax illusion |
| JEL: | G11 H20 H30 K34 M41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:106&r=pub |
| By: | Ralph-C Bayer (School of Economics, University of Adelaide); Frank Cowell |
| Abstract: | Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by under-reporting their own taxable profits. The tax authority could offset firms' informational advantage by adopting "smarter" audit policies that take into account the relationship between a firm's reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms' reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations. |
| Keywords: | tax compliance, evasion, oligopoly |
| JEL: | H20 H21 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2010-23&r=pub |
| By: | Sara LaLumia (Williams College) |
| Abstract: | The federal government delivers substantial college aid through the tax code, after introducing education tax credits in 1998 and a tuition deduction in 2002. The design of the Lifetime Learning tax credit and the tuition deduction may make them particularly useful to older students. This paper investigates how these provisions have affected college attendance of individuals in their 30s and 40s. For most adults, there is no effect on college attendance. Among men whose 1998 educational attainment falls short of earlylife educational expectations, eligibility for an education tax preference is associated with a 2.5 to 3.4 percentage point increase in the probability of college attendance. |
| Keywords: | college finance, education tax credits, and college enrollment |
| JEL: | H31 I22 I28 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2010-11&r=pub |
| By: | European Commission |
| Abstract: | The report is prepared jointly by DG ECFIN and DG TAXUD of the European Commission. As the previous edition, the report analyses recent trends in tax revenues and tax reforms in EU Member States. A particular focus of this year's edition is on the consequences of the global economic and financial crisis on revenue systems and the need to provide adequate policy responses. Given the size of the budgetary consolidation required after the crisis, a contribution from the revenue side will be necessary in many countries. The report analyses how revenue increases and tax systems in general could be designed in a growth-friendly way and to what extent some of the reforms would entail a need for coordination at the EU level. Moreover, it discusses tax policy issues related to the crisis and contributes to the ongoing discussion on financial sector taxation. |
| Keywords: | European Union, taxation, tax reforms, financial sector |
| JEL: | H21 H22 H23 H25 H27 H62 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0024&r=pub |
| By: | Marius Brülhart; Raphaël Parchet |
| Abstract: | Interjurisdictional competition over mobile tax bases is an easily understood mechanism, but actual tax-base elasticities are difficult to estimate. Political pressure for reducing tax rates could therefore be based on erroneous estimates of the mobility of tax bases. We show that tax competition provided the overwhelmingly dominant argument in the policy debates leading to a succession of reforms of bequest taxation by Swiss cantons. Yet, we find only very weak statistical evidence of a relationship between tax burdens on bequests and the concerned tax base of wealthy elderly individuals. Moreover, inheritance tax revenues are found to increase in inheritance tax rates even in the long run, and actual tax rates lie well below the revenue-maximising levels throughout. The alleged pressures of tax competition did not seem in reality to exist. |
| Keywords: | tax competition; inheritance taxation; fiscal federalism |
| JEL: | H3 H7 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:10.04&r=pub |
| By: | Marie-Laure Breuillé; Skerdilajda Zanaj |
| Abstract: | This paper analyzes mergers of regions in a two-tier setting with both horizontal and vertical tax competition. The merger of regions induces three e¤ects on regional and local tax policies, which are transmitted both horizontally and vertically: i) an alleviation of tax competition at the regional level, ii) a rise in the regional tax base, and iii) a larger internalization of tax externalities generated by cities. It is shown that the merger of regions increases regional tax rates while decreasing local tax rates. This Nash equilibrium with mergers is then compared with the Nash equilibrium with coalitions of regions. |
| Keywords: | Mergers, Tax Competition, Fiscal Federalism |
| JEL: | H73 H25 |
| Date: | 2010–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:ceo:wpaper:24&r=pub |
| By: | Juergen von Hagen |
| Abstract: | The financial crisis of 2007-2009 led to a renewed increase in government deficits and debts in many EU countries, causing a full-fledged fiscal crisis in Greece and severe fiscal pressures in other euro-area countries. This has prompted a series of proposals for improving the fiscal framework of the European Monetary Union, the Excessive Deficit Procedure and the Stability and Growth Pact. The first part of this paper reviews the main properties and developments of that framework until 2007. On that basis, it discusses the recent proposals for reform, which range from marginal improvements of the existing framework to the introduction of an explicit framework for managing fiscal crises in the member states, and the expansion of the scope of policy coordination to address macro economic imbalances and the competitiveness of the member states. We find the proposal of a mechanism for dealing with government default most useful. Attempts to suppress current account imbalances and to target national competitiveness positions would most likely result in serious economic losses and do damage to the internal market of the EU. This would increase the wedge between members and non-members of the euro area. |
| Keywords: | Excessive Deficit Procedure, Stability and Growth Pact, Sovereign Default, Fiscal Crises |
| JEL: | F42 H63 H68 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0412&r=pub |
| By: | Kiseok Hong |
| Abstract: | This paper examines fiscal policy issues in the Republic of Korea (hereafter Korea) after the 2009 global financial crisis, including the timing of fiscal policy responses, the effectiveness of expansionary measures, and the long-term implications for government debt. In order to evaluate more accurately Korea’s fiscal response since late 2008, this paper conducts an empirical analysis using historical data from Korea and other countries and derives stylized patterns on counter-cyclicality of fiscal policy and its role in the recovery process. The analysis suggests that Korea’s fiscal stimulus in 2009, while having contributed greatly to the economy’s fast recovery, was unusually large compared with typical fiscal responses during economic downturns. This paper also investigates whether the rapid increase in Korea’s fiscal debt burden is admissible in terms of long-term sustainability. [ADBI Working Paper 225] |
| Keywords: | fiscal policy, Republic of Korea, global financial crisis, expansionary measures, economic |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2982&r=pub |
| By: | Ralph-C Bayer (School of Economics, University of Adelaide); Elke Renner (University of Nottingham); Rupert Sausgruber (University of Copenhagen) |
| Abstract: | We test if confusion and learning could potentially explain all the decay of contributions in the repeated public goods games by implementing a limited information environment to mimic the state of confusion. A comparison shows that the rate of decline is more than twice as high in a standard public goods game. Furthermore, we find that simple learning cannot generate the contribution dynamics, which are commonly attributed to the existence of conditional cooperators. We conclude that cooperative behavior observed in public goods games is not a pure artefact of confusion and learning. |
| Keywords: | public goods experiments, learning, limited information, confusion, conditional cooperation |
| JEL: | C90 D83 H41 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2010-24&r=pub |