nep-pub New Economics Papers
on Public Finance
Issue of 2011‒04‒16
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Commodity Taxation and Redistribution within Households By Bargain, Olivier; Donni, Olivier
  2. Capping Individual Tax Expenditure Benefits By Martin Feldstein; Daniel Feenberg; Maya MacGuineas
  3. Procedurally Fair Taxation By Herings P. Jean-Jacques; Predtetchinski Arkadi
  4. Tax Evasion, Technology Shocks, and the Cyclicality of Government Revenues By Jordi Caballé; Judith Panadés

  1. By: Bargain, Olivier (University College Dublin); Donni, Olivier (University of Cergy-Pontoise)
    Abstract: Using a collective model of consumption, we characterize optimal commodity taxes aimed at targeting specific individuals within the household. The main message is that distortionary indirect taxation can circumvent the agency problem of the household. Essentially, taxation should discourage less the consumption of a certain group of goods: those for which the slope of the Engel curves is larger for the targeted person.
    Keywords: optimal commodity taxation, targeting, intrahousehold distribution
    JEL: D13 D31 D63 H21 H31
    Date: 2011–03
  2. By: Martin Feldstein; Daniel Feenberg; Maya MacGuineas
    Abstract: This paper analyzes a new way of reducing the major individual tax expenditures: capping the total amount that tax expenditures as a whole can reduce each individual's tax burden. More specifically, we examine the effect of limiting the total value of the tax reduction resulting from tax expenditures to two percent of the individual's adjusted gross income. Each individual can benefit from the full range of tax expenditures but can receive tax reduction only up to 2 percent of his AGI. Simulations using the NBER TAXSIM model project that a 2 percent cap would raise $278 billion in 2011. The paper analyzes the revenue increases by AGI class. The 2 percent cap would also cause substantial simplification by inducing more than 35 million taxpayers to shift from itemizing their deductions to using the standard deduction. For any taxpayer for whom the 2 percent cap is binding, a cap would reduce the volume of wasteful spending and the associated deadweight loss. Even for those taxpayers for whom the cap is not binding but who are induced by the cap to shift from itemizing to using the standard deduction, the deadweight loss associated with deductible expenditures would be completely eliminated
    JEL: H2
    Date: 2011–04
  3. By: Herings P. Jean-Jacques; Predtetchinski Arkadi (METEOR)
    Abstract: We study the implications of procedural fairness on income taxation. We formulateprocedural fairness as a particular non-cooperative bargaining game and examine thestationary subgame perfect equilibria of the game. The equilibrium outcome is called tax equilibrium and is shown to be unique. The procedurally fair tax rate is defined as the tax rate that results in the limit of tax equilibria when the probability that negotiations break down converges to zero. The procedurally fair tax rate is shown to be unique. We also provide a characterization of the procedurally fair tax rate that involves the probability mass of below average income citizens and a particular measure of the citizens'' boldness. This characterization is then used to show that in a number of interesting cases the procedurally fair tax rate equals the probability mass of below average income citizens.
    Keywords: public economics ;
    Date: 2011
  4. By: Jordi Caballé; Judith Panadés
    Abstract: This paper analyzes the behavior of the tax revenue to output ratio over the busi- ness cycle. In order to replicate the empirical evidence, we develop a simple model combining the standard Ak growth model with the tax evasion phenomenon. When individuals conceal part of their true income from the tax authority, they face the risk of being audited and hence of paying the corresponding fine. Under the empiri- cally plausible assumptions that the intertemporal elasticity of substitution exhibits a sufficiently small value and that productivity shocks are serially correlated, we show that the elasticity of government revenue with respect to output is larger than one, which agrees with the empirical evidence. This result holds even if the tax system displays flat tax rates. We extend the previous setup to generate larger fiscal deficits when the economy experiences a recession.
    Keywords: Tax evasion, Technology shocks, Growth
    JEL: H23 H26 O41
    Date: 2011–04–06

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