nep-pub New Economics Papers
on Public Finance
Issue of 2011‒10‒15
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Inverse Elasticity Rule in a Production Efficiency Problem By Anthony Hannagan; Hideo Konishi
  2. Optimal taxation in the Uzawa-Lucas Model with externality in human capital By Arantza Gorostiaga; Jana Hromcová; Miguel Ángel López García
  3. Assessing the Impact of the 2007 Tax Reform on Povert and Inequality in Uruguay By Cecilia Llambi; Silvia Laens; Marcelo Perera; Mery Ferrando
  4. US Tax Discrimination Against Large Corporations Should Be Discarded By Gary Clyde Hufbauer; Martin Vieiro
  5. The Implications of Risk and Uncertainty Aversion in Public Goods Games By Veronika Nemes; Lata Gangadharan

  1. By: Anthony Hannagan (Boston College); Hideo Konishi (Boston College)
    Abstract: Diamond and Mirrlees (1971) and Dasgupta and Stiglitz (1972) show that production efficiency is achieved under the optimal commodity tax when profit income is zero. Here, we consider the simplest possible model to analyze production efficiency in the presence of profit income: a tax reform problem in an economy with a representative consumer, two goods, and two firms with decreasing returns to scale technologies. We show that differentiating a uniform producer tax according to the inverse elasticity rule, while keeping government revenue constant, reduces additional distortions caused by the presence of profit income and improves social welfare.
    Keywords: production efficiency, inverse elasticity, profit income
    JEL: H21
    Date: 2011–06–30
  2. By: Arantza Gorostiaga (Dpto. Fundamentos del Análisis Económico II); Jana Hromcová (Universitat de Girona); Miguel Ángel López García (Dpt. Economia Aplicada)
    Abstract: We show that in the Uzawa-Lucas model with externality in human capital with agents that value both consumption and leisure, the government pursuing the first best can achieve its goal by subsidizing the foregone earnings while studying. The subsidy should be financed by a schooling fee. We obtain that countries with similar initial conditions may issue different fees because multiple equilibria can arise for empirically plausible values of parameters. This result differs from the one obtained in ananalogous economy where agents only value consumption.
    Keywords: optimal policy, two-sector model, endogenous growth, indeterminacy.
    JEL: O41 E62 H31
    Date: 2011–09
  3. By: Cecilia Llambi; Silvia Laens; Marcelo Perera; Mery Ferrando
    Abstract: In the context of a sharp rise in the incidence of poverty and increasing inequality since the end of the last decade, a major tax reform was put into place in mid-2007 with the explicit goals of promoting both greater efficiency and equity in the Uruguayan tax system. Overall, the reform substantially increased direct taxes on personal income by increasing marginal rates, lowered indirect taxes and direct taxes on firms, harmonized employer contributions to social security across sectors and eliminated some highly distortionary taxes. The joint effects of these changes on the macroeconomic equilibrium, labour markets, and poverty and inequality are assessed using a top-down static CGE, a microsimulation approach. It is shown that full implementation of the tax reform has substantial general equilibrium effects which generally strengthen the reduction of poverty incidences, poverty gaps and the severity of poverty exclusively due to the introduction of the personal income tax (without behavioural responses). Regarding poverty, the general equilibrium effects are significantly greater than the direct effects. Overall, we estimate a one-point reduction of the Gini index due to the reform.
    Keywords: tax Reform, CGE models, Microsimulations, Poverty, Inequality
    JEL: D58 H20 I38
    Date: 2011
  4. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Martin Vieiro (Peterson Institute for International Economics)
    Abstract: Public opinion holds that large corporations should pay a higher statutory tax rate than other business firms, and enjoy fewer deductions in computing their taxable income. Americans and their representatives in Congress have long entertained the notion that a corporate check paid to the US Treasury means "somebody else" pays the tax, conveniently forgetting that the money has to come from someplace. As the law is now written, the largest corporations (those with assets of $2.5 billion or more) pay about three-fourths of US corporate income taxes, even though they account for just 57 percent of corporate net income. Discriminatory tax burdens on one group of firms drive scarce capital and entrepreneurial energy to less productive firms, penalizing the entire economy. If the targets of discrimination are the nation's largest firms (the norm in the United States) the country will find it harder to compete on a global scale in industries that require dedicated research for decades, industries that exhibit huge scale economies, and industries that network across national borders. Whatever the relative contribution of large and small companies to gross or net job growth, the bottom line for American workers—and the American economy as a whole—is that it is important to ensure that the United States remains a favorable location for US-based multinational corporations to do business.
    Date: 2011
  5. By: Veronika Nemes (Centre for Energy and Environmental Markets, The University of New South Wales and Victorian Government Department of Sustainability and Environment.); Lata Gangadharan (Department of Economics, Monash University)
    Abstract: In this paper we examine how individuals behave in situations of risk and uncertainty in public and private goods context. We find that subjects are willing to pay a much higher amount to find out information relating to the probabilities of providing the private good than information relating to the public good even if this information has greater consequences for the individual in he public goods context. We find strong support for the free-rider hypothesis and extend it to cases when risk and uncertainty are present. We find that subjects treat risks and uncertainties associated with the provision of private good and public good differently.
    Date: 2011–06

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