nep-pub New Economics Papers
on Public Finance
Issue of 2011‒07‒21
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Design of Capital Income Taxation: Reflections on the Mirrlees Review By Keuschnigg, Christian
  2. The Tobin Tax A Review of the Evidence By Neil McCulloch; Grazia Pacillo
  3. A Wealth Tax on the Rich to Bring down Public Debt?: Revenue and Distributional Effects of a Capital Levy By Stefan Bach; Martin Beznoska; Viktor Steiner
  4. Tax Competition Among Local Governments: Evidence from a Property Tax Reform in Finland By Teemu Lyytikäinen
  5. What It Takes to Solve the U.S. Government Deficit Problem By Ray C. Fair

  1. By: Keuschnigg, Christian
    Abstract: This commentary reflects on the recommendations of the Mirrlees Review on tax reform with a special focus on capital income taxation. Regarding the alternatives of moving to a consumption based tax system, the commentary discusses the relative merits of choosing an ACE system (allowance for corporate equity) rather than a cash-flow tax on the company level. It reviews the arguments in favour of full elimination of tax on the normal return to savings at the personal level which contrasts with alternative tax reform proposals recommending a positive but low and flat tax rate on personal capital income. It also discusses how existing computational models would have to be extended for a meaningful quantification of the gains and costs of implementing a tax reform along the lines of the Mirrlees Review.
    Keywords: Fundamental tax reform, consumption based tax system
    JEL: H21 H23 H24 H25
    Date: 2011–07
  2. By: Neil McCulloch (Institute of Development Studies (IDS), University of Sussex); Grazia Pacillo (Department of Economics, University of Sussex)
    Abstract: The debate about the Tobin Tax, and other financial transaction taxes (FTT), gives rise to strong views both for and against. Unfortunately, little of this debate is based on the now considerable body of evidence about the impact of such taxes. This review attempts to synthesise what we know from the available theoretical and empirical literature about the impact of FTTs on volatility in financial markets. We also review the literature on how a Tobin Tax might be implemented, the amount of revenue that it might realistically produce, and the likely incidence of the tax. We conclude that, contrary to what is often assumed, a Tobin Tax is feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions. However, it would be unlikely to reduce market volatility and could even increase it.
    Keywords: Tobin tax, financial transaction taxes, volatility, revenue, incidence, feasibility
    JEL: G15 G18 H22 H27
    Date: 2010–12
  3. By: Stefan Bach; Martin Beznoska; Viktor Steiner
    Abstract: The idea of higher wealth taxes to finance the mounting public debt in the wake of the financial crises is gaining ground in several OECD countries. We evaluate the revenue and distributional effects of a one-time capital levy on personal net wealth that is currently on the German political agenda. We use survey data from the German Socio-Economic Panel (SOEP) and estimate the net wealth distribution at the very top, based on publicly available information about very rich Germans. Since net wealth is strongly concentrated, the capital levy could raise substantial revenue, even if relatively high personal allowances are granted. We also analyze the compliance and administrative costs of the capital levy.
    Keywords: Capital levy, wealth distribution, microsimulation
    JEL: H24 D31 H22
    Date: 2011
  4. By: Teemu Lyytikäinen
    Abstract: This paper uses a Finnish policy intervention to study tax competition among local governments. Changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighbouring municipalities. I do not find evidence of interdependence in property tax rates among Finnish municipalities. The results are in contrast to the earlier empirical literature, using data from other countries, that has mainly found positive interdependence in tax rates. I compare the causal estimates based on the policy change to the commonly used Spatial Lag estimates and Spatial Instrumental Variables estimates, which are based on highly restrictive assumptions. The comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates.
    Keywords: Property tax, tax competition, fiscal interaction, instrumental variables, spatialeconometrics
    JEL: H20 H71 H77
    Date: 2011–06
  5. By: Ray C. Fair (Cowles Foundation, Yale University)
    Abstract: This paper estimates how large fiscal-policy changes have to be to solve the U.S. government deficit problem. This question is complicated in part because of endogeneity issues. A fiscal-policy change designed to decrease the deficit has effects on the macro economy, which in turn affects the deficit. Any analysis of fiscal-policy proposals must take these effects into account: one needs a model of the economy. This paper uses a macroeconometric model of the world economy to examine the deficit problem. A base run is first obtained in which there are no major changes in U.S. fiscal policy.  This results in an ever increasing debt/GDP ratio. Then net taxes (taxes minus transfers) are increased by an amount sufficient to stabilize the long-run debt/GDP ratio. The increases are linearly phased in over a three-year period beginning in the first quarter of 2012. The estimates of the needed net tax increases are large. Compared to values in the base run, net taxes after the phase in need to be about $650 billion higher each year in 2011 dollars. In percentage terms this translates into about 45 percent of personal income taxes, 51 percent of social security taxes, 24 percent of transfer payments to state and local governments and to persons, 44 percent of purchases of goods and services, and 176 percent of corporate profit taxes. The output loss is 1.38 percent of real GDP over the 9 years analyzed.
    Keywords: Federal deficit, Debt/GDP ratio
    JEL: E17
    Date: 2011–07

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