nep-pub New Economics Papers
on Public Finance
Issue of 2011‒02‒12
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency By BARGAIN Olivier; DOLLS Mathias; NEUMANN Dirk; PEICHL Andreas; SIEGLOCH Sebastian
  2. Heterogeneity in Income Tax Incidence: Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs? By David Powell
  3. Tax Evasion under Market Incompleteness By Marco Maffezzoli
  4. Voting over piece-wise linear tax methods By MORENO-TERNERO, Juan D.
  5. Tax Policy and Employment: How Does the Swedish System Fare? By Pirttälä, Jukka; Selin, Håkan
  6. The optimal commodity tax system as a compromise between two objectives By MUNK, Knud J.
  7. Optimum Commodity Taxation with a Non-Renewable Resource By Julien Daubanes; Pierre Lasserre
  8. On the origin of the wta-wtp divergence in public good valuation By Emmanuel Flachaire; Guillaume Hollard; Jason Shogren
  9. Increasing Public Sector Efficiency in Slovakia By Felix Hüfner

  1. By: BARGAIN Olivier; DOLLS Mathias; NEUMANN Dirk; PEICHL Andreas; SIEGLOCH Sebastian
    Abstract: Whether observed di¤erences in redistributive policies across countries are the result of di¤erences in social preferences or e¢ ciency constraints is an important question that paves the debate about the optimality of welfare regimes. To shed new light on this question, we estimate labor supply elasticities on microdata and adopt an inverted optimal tax approach to characterize the redistributive preferences embodied in the welfare systems of 17 EU countries and the US. Implicit social welfare functions are broadly compatible with the ?ction of an optimizing Paretian social planner. Some exceptions due to generous demogrant transfers are consistent with the ignorance of behavioral responses by some European governments and are partly corrected by recent policy developments. Heterogeneity in leisure-consumption preferences somewhat a¤ect the international comparison in degrees of revealed inequality aversion, but di¤erences in social preferences are signi?cant only between broad groups of countries.
    Keywords: social preferences; redistribution; optimal income taxation; labor supply
    JEL: C63 D63 H11 H21
    Date: 2011–01
  2. By: David Powell
    Abstract: Income taxes distort the relationship between wages and non-taxable amenities. When the marginal tax rate increases, amenities become more valuable as the compensating differential for low-amenity jobs is taxed away. While there is evidence that the provision of amenities responds to taxes, the literature has ignored the consequences for job characteristics which cannot fully-adjust. This paper compares the wage response of dangerous jobs to the wage response of safe jobs. When tax rates increase, we should see the pre-tax compensating differential for on-the-job risk increase. Empirically, this paper finds large differences in the wage response of jobs based on their riskiness.
    Keywords: income taxes, value of a statistical life, tax incidence, compensating differentials
    JEL: H22 H24 J17 J28 J31
    Date: 2010–12
  3. By: Marco Maffezzoli
    Abstract: The available empirical evidence suggests that the distribution of income and its composition play an important role in explaining tax noncompliance. We address the issue from a macroeconomic point of view, building a dynamic general equilibrium Bewley model that jointly endogenizes the determinants of tax evasion and income heterogeneity. Our results show that the model can successfully replicate the salient qualitative and quantitative features of the data. In particular, the model replicates fairly well the shape of the cross-sectional distribution of misreporting rates over true income levels. Furthermore, we show that a switch from progressive to proportional taxation has important quantitative effects on noncompliance rates and tax revenues.
    Date: 2011
  4. By: MORENO-TERNERO, Juan D. (Universidad de Malaga, Spain; Universidad Pablo de Olavide, Seville, Spain; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: We analyze the problem of choosing the most appropriate method for apportioning taxes in a democracy. We consider a simple theoretical model of taxation and restrict our attention to piece-wise linear tax methods, which are almost ubiquitous in advanced democracies world- wide. We show that if we allow agents to vote for any method within a rich domain of piece-wise linear methods, then a majority voting equilibrium exists. Furthermore, if most voters have income below mean income then each method within the domain can be supported in equilibrium.
    Keywords: voting, taxes, majority, single-crossing, Talmud
    JEL: D72 H24
    Date: 2010–12–01
  5. By: Pirttälä, Jukka (University of Tampere and the Labour Institute for Economic Research); Selin, Håkan (Uppsala Center for Fiscal Studies)
    Abstract: This paper reviews the literature on optimal taxation of labour income and the empirical work on labour supply and the elasticity of taxable income in Sweden. It also presents an overview of Swedish taxation of labour income, offers calculations on the development in effective marginal tax rates and participation tax rates, and estimates, using the difference-in-differences method, the impact of tax incentives on employment rates of elderly workers. After this background, we ponder possibilities for reforming the Swedish tax system to improve its labour market impacts. We suggest better targeting the earned income tax credit at families and low-income workers, lowering the top marginal tax rates, and maintaining the tax incentives for older workers.
    Keywords: Optimal taxation; labour income taxation; labour supply; taxable income; Swedish tax system.
    JEL: H21 H24 J22
    Date: 2011–02–01
  6. By: MUNK, Knud J. (Faculté d'ingénierie biologique, agronomique et environnementale, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: Policy analysis in applied fields such as agricultural, trade, environmental and development policy is still often undertaken within a first-best, rather than a more realistic second-best framework. The present paper seeks to contribute to changing this state of affairs by providing an intuitive explanation of what determines the optimal tax system. It derives and interprets an optimal tax formula for an economy with many goods to explain the optimal tax system as reflecting a trade-off between, on the one hand, the objective of encouraging the supply of labour to the market and, on the other hand, the objective of limiting the distortion of the marginal rate of substitution between produced goods. It illustrates this insight by a quantitative general equilibrium model which does not impose separability between consumption and leisure. The analysis clarifies issues of normalisation and deepens the insight due to Corlett and Hague (1953) that goods should be taxed according to their complementarity with leisure.
    Keywords: public economics, optimal taxation, rules of normalisation, quantitative model of optimal taxation, Antonelli elasticity of complementarity
    JEL: H2
    Date: 2010–07–01
  7. By: Julien Daubanes; Pierre Lasserre
    Abstract: Optimum commodity taxation theory asks how to raise a given amount of tax revenue while minimizing distortions. We reexamine Ramsey’s inverse elasticity rule in presence of Hotelling-type non-renewable natural resources. Under standard assumptions borrowed from the non-renewable-resource-extraction and from the optimum-commodity-taxation literatures, we show that a non-renewable resource should be taxed in priority whatever its demand elasticity and whatever the demand elasticity of regular commodities. It should also be taxed at a higher rate than other commodities having the same demand elasticity and, while the tax on regular commodities should be constant, the resource tax should vary over time. The appropriate taxation rule depends on the government’s revenue needs; the higher these needs, the closer the consumer price to the monopoly price. Reserves are a form of capital and royalties tax its income; our results contradict Chamley’s conclusion that capital should not be taxed at all in the very long run. When reserves to be extracted are responsive to the taxation of extraction, in the absence of any subsidy to reserve discoveries, the optimal tax rate on extraction obeys an inverse elasticity rule almost identical to that of a commodity whose supply is perfectly elastic. As a matter of fact, there is a continuum of optimal combinations of extraction taxes and subsidies. When the government cannot commit, extraction rents are completely expropriated and subsidies are maximum. In general the optimum Ramsey tax not only causes a distortion of the extraction path, as happens when reserves are given, but also distorts the level of reserves developed for extraction. When that distortion is the sole effect of the tax, it is determined by a rule reminiscent of the inverse elasticity rule applying to elastically-supplied commodities. <P>La taxation optimale des biens cherche à lever des revenus fiscaux donnés en minimisant les distorsions. Nous réexaminons la règle de l’élasticité inverse de Ramsey en présence de ressources non-renouvelables à la Hotelling. Sous les hypothèses standard des littératures de l’extraction des ressources non-renouvelables et de la taxation optimale, une ressource non-renouvelable doit être taxée en priorité, quelles que soient l’élasticité de sa demande et l’élasticité de la demande pour les autres biens. Elle doit l’être à un taux plus élevé qu’un autre bien dont la demande est aussi élastique et, contrairement au taux s’appliquant aux biens conventionnels, ce taux doit varier dans le temps. La taxe dépend des besoins en revenus fiscaux; plus ils sont élevés, plus le prix correspondant s’approche du prix de monopole. Les réserves minérales constituent une forme de capital que taxent les royalties; Chamley a montré qu’il est néfaste de taxer le capital à très long terme. Au contraire, même lorsque les réserves à extraire dépendent du traitement fiscal de l’extraction, en l’absence de toute subvention à l’exploration, le taux optimal de la taxe obéit à la même règle d’élasticité inverse que les biens conventionnels dont l’offre est parfaitement élastique. En fait, il y a une infinité de combinaisons optimales de taxes à l’extraction et de subventions à la constitution de réserves. Si le gouvernement n’est pas en mesure de s’engager à s’abstenir de taxer les producteurs, ces derniers sont entièrement expropriés et ce sont des subventions qui doivent financer la constitution de réserves. En général, la taxe optimale de Ramsey cause une distorsion tant sur le profil d’extraction (comme lorsque les réserves sont données) que sur le volume des réserves lorsque celles-ci sont endogènes. Lorsque cette dernière distorsion est le seul effet de la taxe, elle obéit à une règle proche de celle qui s’applique aux biens conventionnels dont l’offre est élastique.
    Keywords: Optimum commodity taxation, inverse elasticity rule, non-renewable resources, hotelling resource, supply elasticity, demand elasticity, capital income taxation., Taxation optimale des biens, règle de l’élasticité inverse, ressources non-renouvelables, ressource hotellienne, élasticité de l’offre, élasticité de la demande, taxation du capital.
    JEL: Q31 Q38 H21
    Date: 2011–01–01
  8. By: Emmanuel Flachaire (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Guillaume Hollard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Jason Shogren (Departement Economy and Finance, University of Wyoming - University of Wyoming)
    Abstract: This paper tests whether individual perceptions of markets as good or bad for a public good is correlated with the propensity to report gaps in willingness to pay (WTP) and willingness to accept (WTA) revealed within an incentive compatible mechanism. Identifying people based on a notion of market affinity, we find a substantial part of the gap can be explained by controlling for some variables that were not controlled for before. This result suggests the valuation gap for public goods can be reduced through well-defined variables.
    Keywords: behavioral economics; contingent valuation; WTA-WTP gap
    Date: 2011–02–01
  9. By: Felix Hüfner
    Abstract: Given the deterioration in public finances, there is now very little scope for higher spending. Raising public sector efficiency would free up resources and yield better outcomes with the same inputs, helping to stimulate productivity and thus potential growth. Raising efficiency in tax collection (notably VAT) is urgently needed, plans to unify the collection of tax and social security contributions should be implemented swiftly and drawing on EU funds needs to become more efficient. In addition, raising the efficiency in healthcare should be a priority. This involves dealing with the high out-of-pocket payments and reforming the remuneration structure of doctors. Pharmaceutical spending is excessive and can be reduced, notably by further fostering generic substitution. Impediments to competition among health insurance funds should be reconsidered and the risk-equalisation system should be improved. This paper relates to the 2010 OECD Economic Review of the Slovak Republic (<P>Accroître l'efficacité du secteur public en Slovaquie<BR>Étant donné la dégradation des finances publiques, il n’est guère possible désormais d’augmenter les dépenses. En améliorant l’efficacité du secteur public, on dégagerait des ressources et on obtiendrait de meilleurs résultats avec les mêmes intrants, ce qui contribuerait à stimuler la productivité et donc la croissance potentielle. Il est urgent d’améliorer l’efficacité de la collecte des impôts et taxes (notamment de la TVA) ; des plans visant à unifier le recouvrement de l’impôt et des cotisations de sécurité sociale doivent être mis en oeuvre rapidement et les dispositifs de tirage sur les fonds de l’UE doivent devenir plus efficaces. En outre, améliorer l’efficacité des soins de santé devrait être une priorité. Cela implique de s’attaquer au problème du montant élevé des paiements directs et de réformer le mode de rémunération des généralistes. Les dépenses pharmaceutiques sont excessives et peuvent être réduites, notamment en encourageant le recours aux génériques. Il faudrait réexaminer les entraves à la concurrence entre caisses d’assurance-maladie et améliorer le système de répartition équitable des risques. Ce document se rapporte à l’Étude économique de la République slovaque de l’OCDE, 2010 (
    Keywords: public sector efficiency, Slovakia, health policy, efficacité du secteur public, Slovaquie, politique de santé
    JEL: H21 H51 I11
    Date: 2011–02–03

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