nep-pub New Economics Papers
on Public Finance
Issue of 2011‒10‒09
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Income Taxation and the Choice of the Tax Rate Schedule: Sacrifice Principles and "Just" Tax Rates By Hans-Georg Petersen
  2. Measuring the burden of the corporate income tax under imperfect competition By Li Liu; Rosanne Altshuler
  3. Who Offers Tax-Based Business Development Incentives? By R. Alison Felix; James R. Hines, Jr.
  4. Do Cheaters Bunch Together? Profit Taxes, Withholding Rates and Tax Evasion By Paul E. Carrillo; M. Shahe Emran; Anita Rivadeneira
  5. Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador By Paul E. Carrillo; M. Shahe Emran; Gabriela Aparicio
  6. Optimal Government Spending Reversal in a Small Open Economy By Shigeto Kitano; Kenya Takaku

  1. By: Hans-Georg Petersen
    Abstract: In the history of economic thoughts the problem of a "just" tax rate structure has played an important role. The paper reconsiders the discussions of the last two centuries and sheds additional light on the concrete tax schedules using the more recent methods of tax theory. Even if the substitution effects which play an important role in the theory of optimal taxation are neglected, the slope in the diminishing marginal utility of income causes tax rate structures reaching from accelerated progression to delayed regression. Interestingly the principle of equal relative sacrifice combined with a Bernoulli utility function yields a delayed progression, which is connected with a negative income tax.
    Keywords: income tax, sacrifice principle, tax rate schedule, cardinal utility function
    JEL: H21 H24 D31 B13
    Date: 2011–06
  2. By: Li Liu (Centre for Business Taxation, University of Oxford); Rosanne Altshuler (Department of Economics, Rutgers University)
    Abstract: We model and estimate the incidence of the corporate income tax under imperfect competition. Identification comes from variation in effective marginal tax rates in the United States across industries and time. Our empirical results suggest that labor bears a significant portion of the burden of the corporate income tax. In addition, we find that the elasticity of wages with respect to the corporate marginal effective tax rate increases with industry concentration. Over all industries, our estimates suggest that a one dollar increase in corporate tax revenue decreases wages by around 60 cents.
    Keywords: Tax incidence, Wage determination, Corporate income tax, Market structure
    JEL: H22 H25 H31
    Date: 2011
  3. By: R. Alison Felix; James R. Hines, Jr.
    Abstract: Many American communities seek to attract or retain businesses with tax abatements, tax credits, or tax increment financing of infrastructure projects (TIFs). The evidence for 1999 indicates that communities are most likely to offer one or more of these business development incentives if their residents have low incomes, if they are located close to state borders, and if their states have troubled political cultures. Ten percent greater median household income is associated with a 3.2 percent lower probability of offering incentives; ten percent greater distance from a state border is associated with a 1.0 percent lower probability of offering incentives; and a 10 percent higher rate at which government officials are convicted of federal corruption crimes is associated with a 1.2 percent greater probability of offering business incentives. TIFs are the preferred incentive of communities whose residents have household incomes between $25,000 and $75,000; whereas TIFs are much less commonly offered by communities whose residents have household incomes below $25,000. The need to finance TIFs out of incremental tax revenues may make it infeasible for many of the poorest of communities to use TIFs for local business development.
    JEL: H25 H71 H73
    Date: 2011–09
  4. By: Paul E. Carrillo (Department of Economics/Institute for International Economic Policy, George Washington University); M. Shahe Emran (Department of Economics/Institute for International Economic Policy, George Washington University and IPD, Columbia University); Anita Rivadeneira (Centro de Estudios Fiscales, Servicio de Rentas Internas – Ecuador)
    Abstract: We use firm-level administrative data from Ecuador to study the implications of 'reverse withholding' for firms' tax behavior. Withholding does not affect tax liability of firms, but it may result in a discontinuity in the audit probability around the withholding threshold. Exploiting variation in withholding rates across industries and over time, we find that firms' profit taxes concentrate near the withholding rate. To explore the link between bunching and evasion, we use data from third party reports on sales and costs. We show that the firms that bunch are more likely to conceal their sales and inflate their costs. Finally, we create a profile of the firms that bunch and of their general managers: medium size firms in the coastal region headed by single males are significantly more likely to bunch and, presumably, to evade taxes.
    Keywords: Withholding, Reverse Withholding, Firms, Profit Tax, Bunching, Tax Evasion, Ecuador
    JEL: H25 H26 O23 O12
    Date: 2011–03
  5. By: Paul E. Carrillo (Department of Economics/Institute for International Economic Policy, George Washington University); M. Shahe Emran (Department of Economics/Institute for International Economic Policy, George Washington University and IPD, Columbia University); Gabriela Aparicio (Department of Economics, George Washington University)
    Abstract: This paper takes advantage of a rich firm level data set from Ecuador to analyze the effects of a reform in 2007 that introduced imprisonment for tax evasion and made a firm’s CFO liable for tax-crimes. Our dataset contains actual tax-return and financial-statement information for the universe of corporations in Ecuador from 2003 to 2007. We study the effects of higher punishment both at the intensive and extensive margins. We combine a difference-in-difference-in-difference approach with the DiNardo, Fortin and Lemieux decomposition method. This allows us to estimate the heterogeneous effects of the reform across the distribution of firms. We find that, at the intensive margin the reform led to an average 10% increase in real corporate tax payments. However, positive effects are only found at the right tail of the tax distribution (above the 75th percentile). At the extensive margin, the probability of entry into the tax-net increased, but most of the firms that entered the tax net claimed zero taxes.
    Keywords: Tax evasion, corporate tax compliance, tax reform, developing country, punishment, Ecuador
    JEL: H26 H32 O12
    Date: 2011–04
  6. By: Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University); Kenya Takaku (Graduate School of Economics, Nagoya University)
    Abstract: This paper reexamines optimal debt stabilization policy in a small open economy borrowing from abroad. We incorporate spending reversals as a policy option available to policy-makers for stabilizing public debt. Results show that spending reversals can be welfare-improving and that there exists an optimal degree of spending reversal if the debt elasticity of the country-specific risk premium is high. The tradeoff between smoothing the tax rate and stabilizing the sovereign interest rate in the discussion of optimal tax rate policy (Bi, 2010) does not arise. Spending reversals can lower both the tax rate volatility and that of the interest rate.
    Keywords: sovereign debt, debt stabilization, welfare, spending reversals, small open economy
    JEL: F41
    Date: 2011–09

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