nep-pub New Economics Papers
on Public Finance
Issue of 2012‒02‒27
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A New Fiscal Pact, Tax Policy Changes and Income Inequality By Giovanni Andrea Cornia; Juan Carlos Gómez-Sabaini; Bruno Martorano
  2. What’s the Tax Advantage of 401(k)s? By Alicia H. Munnell; Laura Quinby; Anthony Webb
  3. Non-Ricardian Aspects of Fiscal Policy in Chile By Luis Felipe Céspedes; Jorge Fornero; Jordi Galí
  4. Tax competition among local governments: evidence from a property tax reform in Finland By Teemu Lyytikäinen
  5. Dividend taxes and decisions of MNEs: Evidence from a Finnish tax reform By Seppo Kari; Jarkko Harju

  1. By: Giovanni Andrea Cornia (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Juan Carlos Gómez-Sabaini; Bruno Martorano
    Abstract: The paper analyses the changes in tax policy, tax/GDP ratios, tax incidence and income inequality which have taken place in Latin America during the last decade against the background of the changes observed in these variables during the liberal years of the 1980s and 1990s. The paper argues that the recent tax policy changes and a favourable external environment led to an increase of about three points in the regional tax/GDP ratio, that such increase in taxation took place in a slightly or substantially more progressive way than in the past, that the Gini coefficient of the distribution of household income improved on average by 0.4-0.8 points, and that, as a result, redistribution via taxation improved (especially in the Southern Cone) in relation to the 1990s thanks to greater reliance on direct taxes and a reduction in excises. However, in the mid-late 2000s taxation remains unequalizing in about a third of the countries of the region, especially in Central America. The paper concludes by offering recommendations on how the new fiscal pact evolving in the region can be strengthened to improve the redistributive effect of taxation in the years ahead.
    Keywords: tax policy, tax incidence, income inequality, redistribution, fiscal exchange, Latin America
    JEL: D31 D70 H20
    Date: 2012
  2. By: Alicia H. Munnell; Laura Quinby; Anthony Webb
    Abstract: Tax reform is high on the nation’s agenda. While Re­publicans and Democrats may disagree about the ex­tent to which tax increases should be part of the defi­cit reduction effort, they generally agree that a broader base and lower rates for the federal income tax would promote fairness and boost economic growth. The base-broadening discussion inevitably raises the question of cutting back on some “tax expenditures.” These expenditures are revenue losses attributable to provisions of the tax laws that are designed to support particular activities. Prime examples are the provi­sions designed to encourage retirement savings. It seems like a good time to understand the nature of these expenditures, determine how the revenue losses are calculated, think about how tax reform could affect the value of these provisions, and speculate how changes might affect participation and contributions in tax-advantaged savings vehicles, particularly 401(k) plans. The discussion proceeds as follows. The first section provides a brief overview of the role of taxes in the evolution of employer-sponsored retirement plans. The second section describes the tax advantage associated with 401(k) plans. The third section dis­cusses the magnitude of the 401(k) tax expenditure. The fourth section highlights how the size of the tax expenditure depends on the tax treatment of capital income outside of 401(k)s. The fifth section discusses the potential impact of proposals to cut back on the 401(k) tax expenditure. The final section concludes that while some reform proposals may make the 401(k) tax expenditure more equitable, policymakers should proceed with caution because the employer-based retirement system is the main savings vehicle for American workers.
    Date: 2012–02
  3. By: Luis Felipe Céspedes; Jorge Fornero; Jordi Galí
    Abstract: This paper examines non-Ricardian effects of government spending shocks in the Chilean economy. We first provide evidence on those effects based on vector autoregressions. We then show that such evidence can be accounted for by a model that features: (i) a sizeable share of non-Ricardian households (i.e. households which do not make use of financial markets and just consume their current labor income); (ii) nominal price and wage rigidities; (iii) an inflation targeting scheme, and (iv) a structural balance fiscal rule that represents the particular Chilean fiscal rule. The model is estimated employing Bayesian techniques. Finally, we use model simulations to demonstrate the countercyclical effects of the Chilean fiscal rule as compared with a zero-deficit rule.
    Date: 2012–02
  4. By: Teemu Lyytikäinen
    Abstract: This paper uses a Finnish policy intervention to study tax competition among local governments. Changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighbouring municipalities. I do not find evidence of interdependence in property tax rates among Finnish municipalities. The results are in contrast to the earlier empirical literature, using data from other countries, that has mainly found positive interdependence in tax rates. I compare the causal estimates based on the policy change to the commonly used Spatial Lag estimates and Spatial Instrumental Variables estimates, which are based on highly restrictive assumptions. The comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates.
    Keywords: Property tax, tax competition, fiscal interaction, instrumental variables, spatial econometrics
    JEL: H71 H20 H77
    Date: 2011–08–31
  5. By: Seppo Kari; Jarkko Harju
    Abstract: We explore how a firm-level tax on redistributed foreign profits affects the choices of a multinational enterprise (MNE) using evidence from a recent tax reform in Finland. The so-called equalization tax (EQT) used to be a regular element of European imputation systems, designed to ensure that dividends were not paid out of un-taxed profits. Theoretical analyses have suggested that EQT may distort several choices of MNEs. We find a 23 per cent increase in dividend payments and a similar increase in repatriated foreign profits after the repeal of EQT. The reported profits of foreign subsidiaries of Finnish MNEs also increased, which indicates an effect on profit shifting. No change in investment was detected.
    Keywords: Dividend taxation, financial decisions, multinational enterprise, tax reform
    JEL: H32 F23 H25
    Date: 2011–10–12

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