New Economics Papers
on Public Finance
Issue of 2012‒01‒25
nine papers chosen by

  1. Nonlinear Income Tax Reforms By Alan Krause
  2. Welfare improving taxation on savings in a growth model By Long Xin; Pelloni Alessandra
  3. The Regulation of Hunting: A Population Tax By Jens Abildtrup; Frank Jensen
  4. Environmental Taxation and Redistribution Concerns By Rafael Aigner
  5. Less Income Inequality and More Growth – Are They Compatible?: Part 3. Income Redistribution via Taxes and Transfers Across OECD Countries By Isabelle Joumard; Mauro Pisu; Debbie Bloch
  6. Redistribution and the cultural transmission of the taste for fairness By Gilles Le Garrec;
  7. Life expectancy, heavy work and return to education ; lessons for the social security reform By Gilles Le Garrec; Stéphane Lhuissier
  8. Those Outsiders: How Downstream Externalities Affect Public Good Provision By Sarah Jacobson; Jason Delaney
  9. The Good of the Few: Reciprocity in the Provision of a Public Bad By Sarah Jacobson; Jason Delaney

  1. By: Alan Krause
    Abstract: WThis paper addresses questions of the following nature: under what conditions does a welfare-improving reform of a nonlinear income tax system necessitate a change in a particular agent's marginal tax rate or total tax burden? Our analysis is therefore a study in tax reform, rather than in optimal taxation. We consider a simple model with three types of agents (high-skill, middle-skill, and low-skill) who have preferences that are quasi-linear in labour. Under these assumptions and using our methodology, specific characteristics of the initial suboptimal tax system can be determined when all welfare-improving tax reforms require specified changes in a particular agent's tax treatment. Some other necessary features of the tax reform can also be determined. Thus, unlike many tax reform analyses in the literature, we are able to reach a number of clear-cut conclusions.
    Keywords: tax reform; nonlinear income taxation.
    JEL: H21 H24
    Date: 2012–01
  2. By: Long Xin; Pelloni Alessandra
    Keywords: Capital Income taxes, R&D, growth effect, welfare effect
    JEL: E62 H21 O41
    Date: 2011–12
  3. By: Jens Abildtrup (INRA, Laboratoire d´Economic Forestiere, Nancy, France); Frank Jensen (Institute of Food and Resource Economics, University of Copenhagen)
    Abstract: Within hunting, wildlife populations are estimated to be too high in many countries which is assumed to be due to the market failure, that each hunter harvests too little compared to what the regulator wants. This may be due to the existing regulation which, among other things, requires knowledge of the individual harvest. However, information about the individual harvest may be costly to obtain. Thus, we may have to look for alternatives to the existing system. This paper proposes a population tax/subsidy as an alternative which is the difference between the actual and optimal population multiplied by an individual, variable tax rate. The variable tax rate is, among other things, based on the difference in marginal value of the population between the hunter and the regulator. The paper shows that the population tax/subsidy secures a first-best optimum. Thus, the population tax is a good alternative to the existing regulation.
    Date: 2012–01
  4. By: Rafael Aigner (Max Planck Institute for Research on Collective Goods, Bonn and University of Cologne)
    Abstract: This paper shows how the optimal level of Pigouvian taxation is influenced by distributive concerns. With second-best instruments, a higher level of income redistribution calls for a lower level of Pigouvian taxation. More redistributionimplies that tax collection via the income tax creates higher distortions, which in turn makes revenues from Pigouvian taxation more valuable. Contrary to naive intuition, this reduces the optimal level of Pigouvian taxation. The social planner trades off environmental tax revenues against the marginal social damage and accepts a lower tax if the welfare created per dollar is higher. The paper also shows that the relation between levels of redistribution and Pigouvian taxation is reversed in first-best. It thus highlights that second-best Pigouvian taxes are very different from their first-best counterpart – despite apparently identical first order conditions.
    Keywords: Optimal Income Taxation, Pigouvian taxation, comparative statics, externalities, second-best
    JEL: H21 D62 H23
    Date: 2011–07
  5. By: Isabelle Joumard; Mauro Pisu; Debbie Bloch
    Abstract: Taxes and transfers reduce inequality in disposable income relative to market income. The effect varies, however, across OECD countries. The redistributive impact of taxes and transfers depends on the size, mix and the progressivity of each component. Some countries with a relatively small tax and welfare system (e.g. Australia) achieve the same redistributive impact as countries characterised by much higher taxes and transfers (e.g. Germany) because they rely more on income taxes, which are more progressive than other taxes, and on means-tested cash transfers. This paper provides an assessment of the redistributive effect of the main taxes and cash transfers based on a set of policy indicators and a literature review. It also identifies empirically four groups of countries with tax and transfer systems that share broadly similar features. The paper then assesses potential trade-offs and complementarities between economic growth and income redistribution objectives associated with various tax and transfer reform options.<P>Moins d'inégalités de revenu et plus de croissance – Ces deux objectifs sont-ils compatibles ? : Partie 3. Redistribution du revenu par le biais de l'impôt et des transferts dans les pays de l'OCDE<BR>Les impôts et les transferts amènent les inégalités de revenu disponible à un niveau inférieur à celles du revenu marchand. Cet effet redistributif des impôts et transferts n’a pas la même ampleur dans tous les pays de l’OCDE. Il dépend de la taille, de la composition des impôts et transferts ainsi que de la progressivité de chaque composante. Certains pays ayant un système fiscal et de protection sociale relativement peu importants (comme l’Australie, par exemple) obtiennent le même effet redistributif que des pays où les impôts et les transferts sont beaucoup plus élevés (comme l’Allemagne) du fait qu’ils recourent davantage aux impôts sur le revenu, plus progressifs que les autres impôts, et à des transferts en espèces ciblés sur les ménages les plus démunis. Ce document donne une évaluation de l’effet redistributif des principaux impôts et transferts à partir d’une série d’indicateurs de l’action publique et d’une revue des études existantes. Il identifie aussi, de manière empirique, quatre groupes de pays dont les systèmes fiscaux et de protection sociale présentent des caractéristiques à peu près similaires. Le document évalue ensuite les arbitrages et complémentarités potentiels entre les objectifs de croissance économique et de redistribution du revenu relatifs aux diverses possibilités de réforme des systèmes fiscaux et de protection sociale.
    Keywords: taxes, transfers, redistribution, income inequality, cluster analysis, welfare system, transferts, redistribution, impôt, système de protection sociale, inégalité des revenus, analyse par clusters
    JEL: H2 H23 H53 I3 I38
    Date: 2012–01–10
  6. By: Gilles Le Garrec (Observatoire Français des Conjonctures Économiques); (Observatoire Français des Conjonctures Économiques)
    Abstract: Departing from mainstream economics, surveys ?rst show that individ- uals do care about fairness in their demand for redistribution. They also show that the cultural environment in which individuals grow up a¤ects their preferences about redistribution. Including these two components of the demand for redistribution, we propose in this article a mechanism of cultural transmission of the taste for fairness. Consistently with the process of socialization, the young preferences depend on collective choices through observation and imitation. Observation during childhood of redistributive policies far from what is perceived as fair results then in a lower taste for fairness. As a consequence, the model exhibits a multiplicity of history- dependent steady states which may account for the huge di¤erence of redis- tribution observed between Europe and the United States.
    Keywords: redistribution, voting behavior, fairness, endogenous preferences
    JEL: H53 D72 D64
    Date: 2011–12
  7. By: Gilles Le Garrec (Observatoire Français des Conjonctures Économiques); Stéphane Lhuissier (Banque de France)
    Abstract: In most industrial countries, while the calculation of pension bene?ts is progressive, public pension systems redistribute weakly from high to low- income earners. They are close to actuarial fairness. This statement results from the following speci?city: less paid jobs are also heavier and health- damaging jobs involving losses in life expectancy. As avoiding low earnings and hard-working conditions require acquisition of skills, we study conjointly in this article the impact of social security and the work-related life ex- pectancy loss on the schooling decision. We then study macroeconomic and distributional consequences of global gain in life expectancy associated with di¤erent social security reforms, focusing particularly on spillover e¤ects pos- sibly generated by education.
    Keywords: social security, human capital, inequality
    JEL: H55 J31 D63
    Date: 2011–10
  8. By: Sarah Jacobson (Williams College); Jason Delaney (University of Arkansas at Little Rock)
    Abstract: Some policy problems pit the interests of one group against those of another group. One group may, for example, determine the provision of a project (such as a power plant or a dam) that benefits group members but has downstream externalities that hurt people outside the group. We introduce a model of projects with such asymmetries. In-group members may contribute to a common fund that benefits them as a public good. In the model, benefits from the project may or may not vary within the group. Project provision has negative downstream externalities: common fund contributions hurt agents outside the in-group (“Outsiders”) rendering common fund contributions anti-social overall. Many models of social preferences predict that such externalities should reduce or eliminate project provision, although conditional cooperation or a preference for in-group members may counteract this effect. We test this model with a lab experiment. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contribution levels by nearly half. We introduce a rotating high-return position that allows subjects to trade favors. Contributions diminish only slightly with the introduction of the negative externality and reciprocal giving occurs whether or not Outsiders are present.
    Keywords: public bad, public good, social preferences, reciprocity, externalities, in-group-out-group, parochial altruism
    JEL: C91 D01 D62 D71 H41 Q50
    Date: 2012–01
  9. By: Sarah Jacobson (Williams College); Jason Delaney (University of Arkansas at Little Rock)
    Abstract: People have been shown to engage in favor-trading when it is efficiency-enhancing to do so. Will they also trade favors when it reduces efficiency, as in a series of wasteful public projects that each benefits an individual? We introduce the “Stakeholder Public Bad” game to study this question. In each round, contributions to a common fund increase the earnings of one person (the “Stakeholder”) but reduce the earnings of the rest of the group so much that overall efficiency is reduced. The Stakeholder position rotates through members of the group and the promise of the high reward associated with this position may enable subjects to behave reciprocally. We hypothesize that some people will help a current Stakeholder by contributing in hopes of being rewarded later with a reciprocal gift. In a lab experiment, we find evidence of such favor trading. We also find that Stakeholders in this situation seem perfectly willing to sacrifice the good of the group to reap their own personal rewards, and this is true even when their contribution decisions are public. While the revelation of information about others’ actions and roles has previously been shown to enable efficiency-increasing reciprocity, we show that it also enables efficiency-decreasing reciprocal acts. Subjects who are more risk-averse behave in a way that is more myopically self-interested as compared to less risk-averse people when information conditions preclude favor trading, and subjects who identify with the Democratic Party show more restraint when they are Stakeholder than those who do not.
    Keywords: logrolling, social preferences, reciprocity, externalities, public bad, public good
    JEL: C91 D01 D62 D64 D72 H41
    Date: 2012–01

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.