nep-pub New Economics Papers
on Public Finance
Issue of 2012‒03‒21
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Labour Supply and Taxes: New Estimates of the Responses of Wives to Husbands' Wages By Dostie, Benoit; Kromann, Lene
  2. Signing distortions in optimal tax and other adverse selection problems with random participation By Laurence JACQUET; Etienne LEHMANN; Bruno VAN DER LINDEN
  3. European Taxes in a Laboratory By Matus Senaj; Milan Vyskrabka
  4. Tax and the city: A theory of local tax competition and evidence for Germany By Janeba, Eckhard; Osterloh, Steffen

  1. By: Dostie, Benoit (HEC Montreal); Kromann, Lene (CEBR, Copenhagen)
    Abstract: In this paper, we estimate income- and substitution- labour supply and participation elasticities for Canadian married women using data from the Survey of Labour and Income Dynamics 1996-2005. We use the Canadian Tax and Credit Simulator (CTaCS) and detailed information on the structure of income at the household level to compute the marginal tax rates faced by each individual. We then use these marginal tax rates to compute net own-wage, spouse-wage, and non-labour income. We show how the magnitude of the estimated elasticities varies depending on whether net or gross wages and income are used in the estimation procedure, and quantify biases caused by using average instead of marginal tax rates. Finally, because marginal tax rates vary significantly over the sample, we use quantile regressions to compare elasticities at different points of the hours distribution. Overall, our results show that public policies now have, on average, less scope for influencing hours of work than 10 years ago. However, the quantile results show that wives working fewer hours per week are more sensitive to changes in their own or spouses' wages.
    Keywords: labour supply, elasticities, labour force participation, taxes, Canada
    JEL: C25 H31 J22
    Date: 2012–02
  2. By: Laurence JACQUET (THEMA - University of Cergy-Pontoise, UCL-IRES, UCL-Hoover Chair and CESifo); Etienne LEHMANN (CREST-INSEE, UCL-IRES, IDEP, IZA and CESifo); Bruno VAN DER LINDEN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), IZA and ERMES Université Paris 2)
    Abstract: We develop a methodology to sign output distortions in the random participation framework. We apply our method to monopoly nonlinear pricing problem, to the regulatory monopoly problem and mainly to the optimal income tax problem. In the latter framework, individuals are heterogeneous across two unobserved dimensions: their skill and their disutility of participation to the labor market. We derive a fairly mild condition for optimal marginal tax rates to be non negative everywhere, implying that in-work effort is distorted downwards. Numerical simulations for the U.S. confirm this property. Moreover, it is typically optimal to provide a distinct level of transfer to the non-employed and to workers with zero or negligible earnings.
    Keywords: Adverse selection, Optimal taxation, Random participation
    JEL: H21 H23
    Date: 2012–03–13
  3. By: Matus Senaj (National Bank of Slovakia, Research Departmen); Milan Vyskrabka (National Bank of Slovakia, Monetary Policy Department)
    Abstract: Labour tax rates are considerably heterogeneous across European countries. In this paper, we investigate the effects of a policy experiment in which the tax rates levied on labour are harmonised in the member countries of the euro area. Using a four-country DSGE model, we find that shifts in domestic tax rates are the main driver of the total outcome of the policy change while spillover effects are rather limited in the long run. Countries that decrease their total tax wedge boost their economies while countries that increase their tax wedge lose a proportion of output. The adjustment process is rather complicated: a country which gains in the long run may temporarily go through a period of dampened economic activity. The adjustment process is complicated somewhat by the fact that a country which gains in the long run may temporarily go through a period of dampened economic activity. In terms of volatility, the euro area with its homogenous labour tax system may be better prepared to face common area-wide shocks. On the other hand, shocks originating outside the euro area may increase the volatility of euro area output under the homogenous tax regime.
    Keywords: tax reform, DSGE model, euro area
    JEL: D58 H20
    Date: 2011–12
  4. By: Janeba, Eckhard; Osterloh, Steffen
    Abstract: Despite the well-developed empirical literature on local tax competition, little is known about the actual spatial structure of inter-municipal competition. Assuming that competition takes place only among neighbours (as in the empirical literature) is at odds with the theoretical approaches where all jurisdictions compete simultaneously. In this paper we use a survey conducted among mayors in the German state of Baden-Württemberg to show that the perceived intensity of competition for firms varies considerably between jurisdictions and can mainly be explained by the size and location of the jurisdiction. Based on these findings, we develop a sequential tax competition model in which urban centres compete with other urban centres and rural jurisdictions in their own neighbourhood. This model predicts that larger jurisdictions do not necessarily rely more on capital taxes; in case they face strong competition with more distant competitors, larger cities even have lower capital taxes. In addition, we discuss how the model compares to a standard simultaneous approach and show that results from our sequential model are in line with trends in local taxation in Baden-Württemberg. --
    Keywords: Local tax competition,survey,intensity of competition,asymmetric tax competition
    JEL: H71 H73 H77
    Date: 2012

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