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on Public Finance |
| By: | Selim, Sheikh (Cardiff Business School) |
| Abstract: | We examine the optimal taxation problem in a two sector neoclassical economy with workers and capitalists. We show that in a steady state of this economy the optimal policy may involve a capital income tax or subsidy, differential taxation of labour income and redistribution. The level and the direction of the redistribution associated with such an optimal policy depends on the pre tax allocation of capital but not on the social weights attached to the different groups of taxpayers. Excess production of consumption goods creates a difference between the social marginal values of consumption and investment which in turns violates the production efficiency condition. Such a difference can be undone by taxing capital income from the consumption sector, and with this optimal policy the government can implement a redistribution scheme where both workers and capitalists bear the burden of distorting taxes. On the contrary, an optimal policy that involves a capital income subsidy in the production of consumption can implement allocations that minimize the relative price difference between consumption and investment that resulted from the excess production of investment goods. |
| Keywords: | Optimal taxation; Ramsey problem; Two Sector Economy; Redistribution |
| JEL: | C61 E13 E62 H21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2011/6&r=pub |
| By: | Raghbendra Jha; Woojin Kang; Hari K. Nagarajan |
| Abstract: | In India an important policy initiative has been the devolution of financial responsibilities to village level local governments called the Panchayats. The Preamble to this initiative is two fold. First such devolution would not only lead to increased public expenditure but also such expenditures being targeted in a manner consistent with the preferences and needs of the local population. Second, the local tax base would widen, thereby reducing the magnitude of the equalization transfers. However, the incentive structures behind the granting of such additional financial powers have been inadequately articulated. The results have been in the form of reduction in taxes collected, as well as a perceived shrinking of the tax base. These outcomes are posited by us to be due to ignoring the impact of cost of collecting taxes, as well as perverse impacts of devolution of expenditure decisions on local wages and profits. The extant literature has been so far unable to adequately explain the perverse outcomes of devolution especially where reactions to local tax efforts to transfers from the higher level governments are concerned. This paper has attempted to fill this gap. It models and measures the cost of taxation and uses this and the ratio of transfers that augment the local wage rate to those that do not, after controlling for a number of other village level characteristics, to explain tax collected at the local level within a framework that allows for mutual endogeneity of tax collected and transfers. We find that both the cost of tax collection and the ratio of transfers that augment the local wage rate to those that do not have a significant negative effect on tax collection, thus validating the conclusions of the theoretical model developed in this paper. Several policy conclusions are derived. |
| Keywords: | Devolution, Incentive Effects, Equalizing transfers, Panchayats and Local Government |
| JEL: | H71 H77 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pas:asarcc:2011-01&r=pub |
| By: | Lisa Grazzini (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Alessandro Petretto (Università degli Studi di Firenze, Dipartimento di Scienze Economiche) |
| Abstract: | We analyse how vertical or horizontal fiscal equalization affects the overprovision of local public goods due to vertical fiscal externality, when there is tax evasion. The regional governments overspending incentive is examined both in case of a fiscal equalization based on pretax earned income and reported taxable income. |
| Keywords: | Fiscal federalism; Equalization; Marginal Cost of Public Funds, Tax evasion |
| JEL: | H2 H41 H71 H77 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2011_06.rdf&r=pub |
| By: | Hansen, Benjamin (University of Oregon); Sabia, Joseph J. (U.S. Military Academy); Rees, Daniel I. (University of Colorado Denver) |
| Abstract: | Previous researchers have argued that the social market for cigarettes insulates its participants from policies designed to curb youth smoking. Using state Youth Risk Behavior Survey data, we examine whether recent changes in state cigarette taxes affected how young smokers obtained their cigarettes. Our estimates suggest that tax increases reduce youth smoking participation primarily through their effect on third-party purchase, although there is evidence that they are negatively related to borrowing among younger teenagers and negatively related to direct purchase among older teenagers. |
| Keywords: | youth smoking, cigarette taxes |
| JEL: | I10 I12 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5580&r=pub |