nep-pub New Economics Papers
on Public Finance
Issue of 2011‒08‒15
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Capital Taxation and Consumer Uncertainty By Justin Svec
  2. Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform By Leonard E. Burman; Marvin Phaup
  3. The taxation of foreign profits - the old view, the new view and a pragmatic view By Johannes Becker; Clemens Fuest
  4. Tax Expenditures: Revenue and Information Forgone - the experience of Ireland By Micheál L. Collins; Mary Walsh
  5. The Impacts of Fat Taxes and Thin Subsidies on Nutrient Intakes By Salois, Matthew J.; Tiffin, Richard
  6. A Wealth Tax Abandoned: The role of the UK Treasury 1974-6 By Howard Glennerster
  7. Path dependence in public-good games By Lisa Bruttel; Tim Friehe

  1. By: Justin Svec (Department of Economics, College of the Holy Cross)
    Abstract: This paper analyzes the impact of consumer uncertainty on optimal fiscal policy in a model with capital. The consumers lack confidence about the probability model that characterizes the stochastic environment and so apply a max-min operator to their optimization problem. An altruistic fiscal authority does not face this Knightian uncertainty. It is shown analytically that the government, in responding to consumer uncertainty, no longer sets the expected capital tax rate exactly equal to zero, as is the case in the full-confidence benchmark model. However, our numerical results indicate that the government does not diverge far from this value. Even though the capital income tax rate is close to zero in expectation, consumer uncertainty leads the altruistic government to implement a more volatile capital tax rate across states. In doing so, the government relies more heavily on the capital tax and, consequently, less heavily on the labor income tax to finance the shock to public spending.
    Keywords: Robust control, uncertainty, taxes, capital, Ramsey problem
    JEL: E61 E62 H21
    Date: 2011–08
  2. By: Leonard E. Burman; Marvin Phaup
    Abstract: One possible explanation for the difficulty in controlling the budget is that a major component of spending—tax expenditures—receives privileged status. It is treated as tax cuts rather than spending. This paper explores the implications of that misclassification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The paper then suggests options for reform to the budget process that would explicitly incorporate and properly measure tax expenditures. It concludes by considering ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures.
    JEL: H21 H24 H50 H62
    Date: 2011–08
  3. By: Johannes Becker (Institute of Public Economics I, University of Muenster); Clemens Fuest (Oxford University Centre for Business Taxation)
    Abstract: In this short paper, we review the criticism of the standard view (the ’old view’) of foreign profit taxation which goes back to Peggy Musgrave (née Richman, 1963). This ?new view of international taxation is based on recent empirical studies and favours a system where foreign profits are exempt from tax. We critically discuss the debate between old view and new view proponents and, finally, confront the two with a ?pragmatic view on foreign profit taxation which crucially builds on compliance and tax administration cost.
    Keywords: Corporate Taxation, Multinational Firms, Repatriation
    JEL: H25 F23
    Date: 2011
  4. By: Micheál L. Collins (Department of Economics, Trinity College Dublin); Mary Walsh (Chartered accountant, Wicklow, Ireland.)
    Abstract: Tax expenditures are perceived to represent a ‘pervasive and growing’ (OECD, 2010) element of many national taxation systems. Despite this, in many countries, there remains a critical lack of understanding of their impact and scale. A 2010 OECD analysis produced data for only seven of its thirty-four member states. Internationally and nationally, such an information deficit undermines the ability of taxation systems to function efficiently and compromises the ability of policy makers to design, control and evaluate taxation interventions. The latter is all the more relevant in the context of recent economic challenges. This paper derives from the results of the first comprehensive exploration of Ireland’s tax expenditure system. It highlights the previously unknown scale of that system, points towards a series of information deficits and compares the Irish system to that of other OECD countries. Based on this analysis, the paper offers a series of administrative and structural reforms relevant to all tax expenditure systems.
    Keywords: Tax Expenditures, Tax Reform, OECD, Ireland
    JEL: H21 H24 H29
    Date: 2011–08
  5. By: Salois, Matthew J.; Tiffin, Richard
    Abstract: This paper examines the health effects of a fiscal food policy based on a combination of fat taxes and thin subsidies. The fat tax is based on the saturated fat content of food items while the thin subsidy is applied to select fruit and vegetable items. The policy is designed to be revenue neutral so the subsidy exactly offsets the revenue from the fat tax. A model of food demand is estimated using Bayesian methods that accounts for censoring and infrequency of purchase (the problem of unit values is also discussed). The estimated demand elasticities are used to compute nutrient elasticities which demonstrate how consumption of specific nutrients changes based on price changes in particular foods from the fiscal policy. Results show that although the fat tax decreases saturated fat intake, consumption of other important nutrients is also decreased, which may lead to negative health outcomes.
    Keywords: fat tax, nutrient elasticities, obesity, thin subsidy, Food Consumption/Nutrition/Food Safety, D30, D60, H20, I10, I30,
    Date: 2011–04
  6. By: Howard Glennerster
    Abstract: The distribution of wealth is widening in many countries and with it the importance of inherited wealth. In 1974 a Labour Government came to power in the United Kingdom committed to introducing an annual wealth tax. It left office without doing so. Using the official archives of the time and those of a key advisor this paper traces both the origins of the policy and its fate in Whitehall. It explores two related questions. What does this experience tell us about the role of the civil service in the policy process in the UK and what lessons might be learned by those wishing to tackle the issue of widening wealth disparities today?
    Keywords: wealth tax, policy process, UK Treasury
    JEL: H27
    Date: 2011–06
  7. By: Lisa Bruttel; Tim Friehe
    Abstract: This paper presents experimental evidence that contributions to a public good can be path-dependent for a limited time span. We study a repeated linear public-good game with punishment opportunities. Our data shows that subjects who had experienced a higher marginal return on public-good contributions in rounds 1-10 contributed more to the public good in rounds 11 and 12, even though they faced the same marginal return as the control group in these later rounds. In contrast, di erences in contributions were not significant when comparing subjects bearing the same current costs of punishment points, but having had different costs in the past.
    Keywords: public-good game, team, punishment, path dependence, experiment
    Date: 2011

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