nep-pub New Economics Papers
on Public Finance
Issue of 2011‒06‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation and democracy By Mutascu, Mihai
  2. Fiscal stimulus and distortionary taxation By Drautzburg, Thorsten; Uhlig, Harald
  3. Optimal top marginal tax rates under income splitting for couples By Bach, Stefan; Corneo, Giacomo; Steiner, Viktor
  4. Property Taxation, Zoning, and Efficiency: A Dynamic Analysis By Stephen Coate
  5. The Effects of Flat Tax on Inequality and Informal Employment: The Case of Albania By Isilda Mara; Edlira Narazani

  1. By: Mutascu, Mihai
    Abstract: In this study we are examining the validity of relationship between level of taxation and democracy, using a panel-model approach. The data-set covers the period 2002-2008, including 51 states. The main finding stresses that the assumed function are nonlinear, and has a quadratic U-shape.
    Keywords: Taxation; Democracy; Nonlinearity; Dynamic Panel
    JEL: D70
    Date: 2011
  2. By: Drautzburg, Thorsten; Uhlig, Harald
    Abstract: We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (Smets and Wouters, 2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially. --
    Keywords: Fiscal Stimulus,New Keynesian model,liquidity trap,zero lower bound,fiscal multiplier
    JEL: E62 E63 E65 H20 H62
    Date: 2011
  3. By: Bach, Stefan; Corneo, Giacomo; Steiner, Viktor
    Abstract: This paper analytically derives optimal top marginal tax rates when couples are taxed according to income splitting between spouses, consumption is taxed, and the skill distribution is unbounded. Optimal top marginal income tax rates are then quantified for Germany. Estimation results based on an exhaustive dataset of top taxpayers suggest that the optimal asymptotic tax rate is close to 2/3 and only applies to incomes that are considerably higher than those currently subject to the actual top tax rate.
    Keywords: optimal income tax; top incomes
    JEL: D31 D72 H23
    Date: 2011–06
  4. By: Stephen Coate
    Abstract: This paper revisits the classic argument that a system of local governments financing public service provision via property taxes will produce an efficient allocation of both housing and services if communities can implement zoning ordinances. The novel feature of the analysis is a dynamic model in which housing stocks and public policies are endogenously determined. In each period, citizens choose both the level of services for their communities and the zoning ordinances that govern future new construction. The main result of the paper is that there does not exist an equilibrium which has a steady state that is both efficient and satisfies a local stability property. The paper also develops examples in which equilibrium allocations converge to a steady state in which there is over-zoning and households are forced to over-consume housing. The findings of the paper challenge the well-known Benefit View of the property tax.
    JEL: H21 H72
    Date: 2011–06
  5. By: Isilda Mara; Edlira Narazani
    Abstract: In this study we perform the first econometric attempt to estimate the trade-off between equity and efficiency of tax systems counting for the tax evasion option in a developing country such as Albania. Using the Albanian Living Srandard Measurement Survey (2005, 2008) we estimate a micro-econometric model of labour supply and incorporate the option of participation in regular and irregular labour markets. Swapping the tax rules of 2005 with 2008, we find that the flat tax has not contributed in the reduction of labour informality but rather the increases in regular wages have played an important role in convincing the individuals to move to regular market. Furthermore, we find that controls and audits are more efficient than fines in inducing people to switch from the informal to formal labour market. A similar effect is achieved also when “honest” individuals are endowed with a universal benefit. In distributional terms, calculations of Gini inequality index and Sen’s welfare index demonstrate that the only scenario that would improve welfare index is a progressive tax rule as before 2007. Finally, these results suggest that a kind of progressivity should be reinserted to the taxation system without affecting the attractiveness of the simplicity exercised by the flat tax.
    Date: 2011–05

This nep-pub issue is ©2011 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.