nep-pub New Economics Papers
on Public Finance
Issue of 2011‒09‒16
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Economic integration and the optimal corporate tax structure with heterogeneous firms By Christian Bauer; Ronald B. Davies; Andreas Haufler
  2. Is VAT stabilizing? By Christian Ebeke; Hélène Ehrhart
  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 policy and income inequality in the U.S., 1978—2009: A decomposition approach By Olivier Bargain; Mathias Dolls; Herwig Immervoll; Dirk Neumann; Andreas Peichl; Nico Pestel; Sebastian Siegloch
  5. From microscopic taxation and redistribution models to macroscopic income distributions By Maria Letizia Bertotti; Giovanni Modanese
  6. The power to tax By Estrada, Fernando

  1. By: Christian Bauer (University of Munich); Ronald B. Davies (University College Dublin; Institute for International Integration Studies, Trinity College Dublin); Andreas Haufler (University of Munich)
    Abstract: We study the optimal combination of corporate tax rate and tax base in a model of a small open economy with heterogeneous firms. We show that it is optimal for the small country's government to effectively subsidize capital inputs by granting a tax allowance in excess of the true costs of capital. Economic integration reduces the optimal capital subsidy and drives low-productivity firms from the small country's home market, replacing them with high-productivity exporters from abroad. This endogenous policy response creates a selection effect that increases the average productivity of home firms when trade barriers fall, in addition to the well-known direct effects.
    Keywords: corporate tax reform, trade liberalization, firm heterogeneity
    JEL: H25 H87 F15
    Date: 2011–08
  2. By: Christian Ebeke (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Hélène Ehrhart (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: We study whether the adoption of the value-added tax (VAT) in developing countries was an effective way of stabilizing tax revenues. Using a large panel of 103 developing countries observed over 1980-2008 and several alternative estimation methods in order to deal with the self-selection bias and the endogeneity issue of VAT adoption, we find robust evidence that the presence of VAT leads to significantly lower tax revenue instability. On average, countries with a value added tax experience tax revenue instability forty to fifty percent lower than the countries which do not have a VAT system. Those effects decrease with the levels of economic development and trade openness.
    Keywords: Tax Instability;Value Added Tax;Macroeconomic Fluctuations;developing countries
    Date: 2011–08–26
  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: Olivier Bargain (UC Dublin, IZA and CEPS/INSTEAD); Mathias Dolls (University of Cologne and IZA); Herwig Immervoll (OECD, ISER and IZA); Dirk Neumann (University of Cologne and IZA); Andreas Peichl (IZA, University of Cologne, ISER and CESifo); Nico Pestel (University of Cologne and IZA); Sebastian Siegloch (University of Cologne and IZA)
    Abstract: We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle mechanical effects due to changes in pre-tax incomes from direct effects of policy reforms. While tax reforms implemented under Democrat administrations, in particular the EITC reforms in the 1990s and the ARRA in 2009, had an equalizing effect at the lower half of the distribution, the disequalizing effects of Republican reforms are due to tax cuts for high-income families. As a consequence of partisan politics, overall policy effects almost cancel out over the whole time period.
    Keywords: Tax policy, Inequality, Redistribution, Political Economy, Great Recession
    JEL: H23 H31 H53 P16
    Date: 2011
  5. By: Maria Letizia Bertotti; Giovanni Modanese
    Abstract: We present here a general framework, expressed by a system of nonlinear differential equations, suitable for the modelling of taxation and redistribution in a closed (trading market) society. This framework allows to describe the evolution of the income distribution over the population and to explain the emergence of collective features based on the knowledge of the individual interactions. By making different choices of the framework parameters, we construct different models, whose long-time behavior is then investigated. Asymptotic stationary distributions are found, which enjoy similar properties as those observed in empirical distributions. In particular, they exhibit power law tails of Pareto type and their Lorenz curves and Gini indices are consistent with some real world ones.
    Date: 2011–09
  6. By: Estrada, Fernando
    Abstract: This article describes the argumentative structure of Hayek on the relationship between power to tax and redistribution. It is observed throughout its work giving special attention to two works: The Constitution of Liberty (1959) and Law, Legislation and Liberty, vol3; The Political Order of Free People, 1979) Hayek describes one of the arguments most complete information bout SFP progressive tax systems (progressive tax). According to the author the history of the tax progressive system, works against such a tax model and deploys a variety of arguments in his favorite spot by critics: liberal democracy.
    Keywords: Power to Tax; Redistribution; Government; Progressive Tax; Democracy; Hayek
    JEL: E62 O23 E64 B1 E2 B2 E6 E60
    Date: 2011–09–06

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