nep-pub New Economics Papers
on Public Finance
Issue of 2011‒04‒23
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxpayer Reporting Responses and the Tax Reform Act of 1986 By James Alm; Sally Wallace
  2. Optimal Redistributive Taxation with Both Labor Supply and Labor Demand Responses By Jacquet, Laurence; Lehmann, Etienne; Van der Linden, Bruno
  3. The peer group effect and the optimality properties of head and income taxes By Francisco Martinez Mora
  4. Should we subsidize longevity? By Marie-Louise Leroux; Pierre Pestieau; Grégory Ponthière
  5. Optimal Commodity Taxation and Redistribution within Households By Donni Olivier; Bargain Olivier
  6. Taxpayer Information Assistance Services and Tax Compliance Behavior By James Alm; Todd Cherry; Michael Jones; Michael McKee
  7. Fiscal Policy: Lessons from the Crisis By Daniele Franco (editor)
  8. A note on Condorcet consistency and the median voter By Buechel, Berno

  1. By: James Alm (Department of Economics, Tulane University); Sally Wallace (Department of Economics, Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This paper examines the effects of the Tax Reform Act of 1986 on the reporting decisions of taxpayers, using microlevel information from the 1984 and 1989 Statistics of Income. We find that tax reform clearly mattered in the reporting decisions of individuals, with reporting elasticities that cluster between 0.3 and 0.7. However, our results also indicate that individuals' estimated responses vary in different ways for individuals with different income levels, in ways that differ by the types of incomes received by taxpayers, in ways that are sensitive to the estimation approach, and in ways that depend upon data adjustment methods.
    Keywords: Tax Reform Act of 1986, income reporting, taxable income elasticity, quantile regression
    JEL: H24 H31 H3
    Date: 2011–04
  2. By: Jacquet, Laurence (Norwegian School of Economics and Business Administration); Lehmann, Etienne (CREST-INSEE); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework with endogenous (voluntary) nonparticipation and (involuntary) unemployment. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two types of responses. For plausible parameters, our matching environment induces much lower employment tax rates than the usual competitive participation model.
    Keywords: optimal taxation, labor market frictions, unemployment
    JEL: D82 H21 J64
    Date: 2011–04
  3. By: Francisco Martinez Mora
    Abstract: This paper studies a Tiebout model with two school districts, housing markets and peer effects to re-evaluate the optimality properties of the allocation of households to districts induced by head and income taxes. The main novel results reveal that head taxes are not superior to income taxes and that the indirect redistribution implied by income taxation is not necessarily at odds with location optimality or associated to welfare losses. Many combinations of head taxes differentiated by household type can sustain the optimal outcome as an equilibrium. While this may not be possible using differentiated income taxes, a combination of non-differentiated ones and differentiated head taxes levied on the residents of the rich district can lead to the optimal outcome and effect significant local redistribution. In turn, non-differentiated head taxes are suboptimal (unless optimality requires one of the districts to be type-homogeneous) and a combination of uniform income taxes and head taxes levied on the rich district's population can do as well as them. Moreover, non-differentiated income taxes may generate smaller welfare losses than their lump-sum counterpart, a result which clashes with the benefit view of head taxes.
    Keywords: Tiebout; peer effects; head tax, income tax; optimality
    Date: 2011–04
  4. By: Marie-Louise Leroux (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain); Pierre Pestieau (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain, CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, CEPR - Center for Economic Policy Research - CEPR, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris); Grégory Ponthière (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris)
    Abstract: This paper studies the design of the optimal non linear taxation in an economy where longevity varies across agents, and depends on three factors: longevity genes, health investment and farsightedness. Provided earnings, farsightedness and genes are correlated, governmental intervention can be justi.ed on two grounds: correction for a lack of farsightedness and redistribution across both earnings and genetic dimensions. Whether longevity-enhancing spending should be subsidized or taxed is shown to depend on the combined effects of myopia, self-selection and free-riding on the annuity returns. Our policy conclusions depend also on how productivity and genes are correlated, on the complementarity of genes and efforts in the survival function, and on how the government weights the welfare of heterogeneous agents. All in all, it might be desirable to tax longevity-enhancing spending.
    Keywords: optimal taxation ; longevity ; genetic background ; heterogeneity ; myopia
    Date: 2011–04–15
  5. By: Donni Olivier; Bargain Olivier (THEMA, Universite de Cergy-Pontoise; University College of Dublin, CHILD and IZA)
    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
  6. By: James Alm (Department of Economics, Tulane University); Todd Cherry (Department of Economics, Walker College of Business, Appalachian State University); Michael Jones (Department of Economics, Bridgewater State College); Michael McKee (Department of Economics, Walker College of Business, Appalachian State University)
    Abstract: The traditional "enforcement" paradigm of tax administration views taxpayers as potential criminals, and emphasizes the repression of illegal behavior through frequent audits and stiff penalties. However, an important trend in tax administration policies in recent years is the recognition that this paradigm is incomplete. Instead, a revised "service" paradigm recognizes the role of enforcement, but also emphasizes the role of tax administration as a facilitator and a provider of services to taxpayer-citizens. This research utilizes laboratory experiments to test the effectiveness of such taxpayer service programs in enhancing tax compliance. Our basic experimental setting mimics the naturally occurring environment: subjects earn income, they must choose whether to file a tax return, and they then must choose how much of their net income to report to a tax authority that may audit the subject. To investigate the effects of taxpayer services, we "complicate" these compliance decisions of subjects, and then provide "services" from the "tax administration" that allow subjects to compute more easily their tax liabilities. Our results indicate that uncertainty reduces both the filing and the reporting compliance of an individual. However, we also find that agency-provided information has a positive and significant impact on the tendency of an individual to file a tax return, and also on reporting for individuals who choose to file a return.
    Keywords: tax evasion, tax compliance, behavioral economics, experimental economics
    JEL: H26 C91
    Date: 2011–04
  7. By: Daniele Franco (editor) (Bank of Italy)
    Abstract: The volume collects the essays presented at the 12th Workshop on Public Finance organised by Banca d'Italia in Perugia on 25-27 March 2010. The workshop focused on the implications for fiscal policy analysis of the 2008-09 recession, the most severe at global level since the Great Depression. Session 1 examined the lessons of the crisis for the role of automatic stabilisers and discretionary fiscal policy. Session 2 investigated the effects of policy actions on the economy. Section 3 considered the impact of the crisis on fiscal policy rules and procedures. Section 4 dealt with the economic legacy of the crisis and the policy actions required in the years to come.
    Keywords: fiscal rules, fiscal policy, 2008 crisis
    JEL: E32 E62
    Date: 2011–02
  8. By: Buechel, Berno
    Abstract: We discuss to which extent the median voter theorem extends to the domain of single-peaked preferences on median spaces. After observing that on this domain a Condorcet winner need not exist, we show that if a Condorcet winner does exist, then it coincides with the median alternative ('the median voter'). Based on this result, we propose two non-cooperative games that implement the unique strategy-proof social choice rule on this domain. --
    Date: 2011

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