nep-pub New Economics Papers
on Public Finance
Issue of 2012‒04‒03
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Nice guys finish last: are people with higher tax morale taxed more heavily? By Philipp Doerrenberg; Denvil Duncon; Clemens Fuest; Andreas Peichl
  2. Differential taxation and firms' financial leverage: Evidence from the introduction of a flat tax on interest income By Fossen, Frank; Simmler, Martin
  3. Does fiscal cooperation increase local tax rates in urban areas By Charlot, S.; Paty, S.; Piguet, V.
  4. Taxation and Development: What Have We Learned from Fifty Years of Research? By Richard M. Bird
  5. Financing Social Expenditures in Developing Countries: Payroll or Value Added Taxes? By Richard M. Bird; Michael Smart
  6. Subnational Taxation in Large Emerging Countries: BRIC Plus One By Richard M. Bird
  7. Government Fiscal Policies and Redistribution in Asian Countries By Iris Claus; Jorge Martinez-Vazquez; VIoleta Vulovic
  8. The Impact of Uruguay’s 2007 Tax Reform on Equity and Efficiency By Bruno Martorano
  9. Mechanism Design and Voting for Public-Good Provision By Felix Bierbrauer; Martin Hellwig
  10. Warm-Glow Giving and Freedom to be Selfish By Özgür Evren; Stefania Minardi

  1. By: Philipp Doerrenberg (CGS, University of Cologne); Denvil Duncon (Indiana University); Clemens Fuest (University of Oxford); Andreas Peichl (IZA, University of Cologne, ISER and CESifo)
    Abstract: This paper is the first to provide evidence of efficient taxation of groups with heterogeneous levels of 'tax morale'. We set up an optimal income tax model where high tax morale implies a high subjective cost of evading taxes. The model predicts that 'nice guys finish last': groups with higher tax morale will be taxed more heavily, simply because taxing them is less costly. Based on unique cross-country micro data and an IV approach to rule out reverse causality, we find empirical support for this hypothesis. Income groups with high tax morale systematically face higher average and marginal tax rates. To the best of our knowledge, this is the first paper to investigate whether differences in tax morale affect the distribution of the tax burden across different groups of taxpayers.
    Keywords: tax morale, tax compliance, optimal taxation, political economy
    JEL: H2 H3 D7
    Date: 2012–01–06
  2. By: Fossen, Frank; Simmler, Martin
    Abstract: Tax competition for the mobile factor capital has led to a trend in many countries to levy lower taxes on interest income, often introducing differential taxation between interest and business income. In this study, we analyze the effect of such differential taxation on the debt ratio of firms. We exploit a 2009 tax reform in Germany as a quasi-experiment, which introduced a flat final withholding tax and opened a gap of 18 percentage points between the tax rate on income from unincorporated businesses and the new lower tax rate on interest income. We apply a regression adjusted semi-parametric difference-in-difference matching strategy based on firm level panel data. In addition, we implement a more structural approach with a tax rate differential, taking into account its endogeneity by using instrumental variables. The results indicate that firms increase their leverage when the tax rate on interest income decreases, albeit to a small degree. --
    Keywords: income taxation,capital taxation,financial structure,leverage,matching
    JEL: H25 H24 G32
    Date: 2012
  3. By: Charlot, S.; Paty, S.; Piguet, V.
    Abstract: The main purpose of this paper is to assess the effects of fiscal cooperation on local taxation in a decentralized country, using the French experience in urban municipalities. We estimate a model of tax setting for local business tax using spatial and dynamic econometric techniques, for the period 1993-2003 and an unbalanced data set. As predicted by the theory, we find that reducing the number of municipalities is likely to limit tax competition and, as a consequence, increase local business tax rates.
    JEL: H2 H3 H7
    Date: 2012
  4. By: Richard M. Bird (University of Toronto)
    Abstract: We have learned a great deal about taxation and development over the last half-century. However, we still have much to learn. Even the best research answers to particular questions have usually turned out to be extremely difficult to apply in practice. Over the past fifty years what might be called the standard approach to tax and development has undergone a number of major model changes over the years but no magical fiscal medicine suitable for all has been found. In this brief paper I first attempt to provide a perspective on a half century of work and then to note some questions that seem to call for more research. I emphasize that even the best research is only one of many inputs in shaping public policy and suggest that to some extent the task we face is perhaps not so much to improve research on tax and development as it is to improve how we market what we learn to those who can, if they wish, put the knowledge to use. What is needed is less a non-existent ‘universal fix’ than a fiscal medicine kit containing a variety of remedies and treatments that may help developing countries to cope with the wide variety of fiscal problems that arise at different times and often in different ways.
    Keywords: taxation; development; technical assistance; history of thought
    Date: 2012–01–13
  5. By: Richard M. Bird (University of Toronto); Michael Smart (University of Toronto)
    Abstract: At present most social protection programs in Latin American countries are financed by payroll taxes levied on the formal sector. Increasingly, some countries are both extending some benefits similar to those received from these programs to non-contributors and financing such extensions as well as some benefits for contributors from general revenues, which at the margin in most countries means from the value added tax. In this paper we consider the efficiency of payroll taxes compared to value-added taxes as a way of financing expanded social programs in countries with large informal sectors. To do so, we construct a simple formal model that indicates, in general, that a revenue-neutral move from payroll to value-added taxes will reduce informality and increase wages, output and welfare. While the issue is not a simple one, and the specific conditions in each country need careful consideration, this analysis suggests that in countries with large informal sectors it is probably best to finance incremental expansions of social programs from broad-based taxes like VAT instead of payroll taxes.
    Date: 2012–01–13
  6. By: Richard M. Bird (University of Toronto)
    Abstract: This paper reviews the evolution and current state of subnational taxation in five large emerging countries: Brazil, Russia, India, China, and Nigeria – BRIC plus one. As these case studies show, intergovernmental fiscal relations in any country are inevitably both path-dependent and context-sensitive. In India and Brazil, for example, subnational governments already have a significant degree of fiscal autonomy in terms of being able to set some key tax rates. In both countries, however, substantial attention still must be paid to improving the general consumption taxes that are the main source of regional government revenues as well as the property taxes on which local governments mainly depend. Although Nigeria, like India and Brazil, is a federation, its fiscal system depends so heavily on oil revenues that almost all political attention has been focused on securing a bigger share of these revenues. Both China and Russia have made a number of important changes in the direction of centralizing rather than decentralizing effective control over subnational taxes. In both countries the key issue is the extent to which fiscal decentralization is to be accompanied by any significant political decentralization. At the present time, in neither China nor Russia is it clear that the central authorities are willing to permit subnational governments much autonomy in this respect.
    Keywords: state and local taxation, intergovernmental fiscal relations, Brazil, Russia, India, China, Nigeria
    Date: 2012–01–13
  7. By: Iris Claus (Asian Development Bank); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); VIoleta Vulovic (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Date: 2012–02–13
  8. By: Bruno Martorano (UNICEF Innocenti Research Centre, Florence)
    Abstract: In 2007, the Uruguayan government implemented a new tax reform which introduced a new progressive labour income tax, a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This paper presents an evaluation of the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for the years 2006 and 2009. Using a Difference-in-Differences technique, the paper shows that the new tax system lowered inequality by 2 Gini points without producing any discernible disincentive effect. These results contrast with the conclusions of supply side-economics and suggest that suitably designed reforms of direct taxation can simultaneously achieve the goals of equity and efficiency.
    Keywords: Tax reform, tax incidence, income distribution, efficiency, matching estimators
    JEL: C14 D63 H21
    Date: 2012
  9. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn); Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We propose a new approach to the normative analysis of public-good provision. In addition to individual incentive compatibility, we impose conditions of robust implementability and coalition proofness. Under these additional conditions, participants' contributions can only depend on the level of public-good provision. For a public good that comes as a single indivisible unit, provision can only depend on the population share of people in favour of provision. Robust implementability and coalition proofness thus provide a foundation for the use of voting mechanisms. The analysis is also extended to a specifi cation with more than two public-good provision levels.
    Keywords: Mechanism Design, Public-good provision, Large Economy, Voting Mechanisms
    JEL: D82 H41 D70 D60
    Date: 2011–12
  10. By: Özgür Evren (New Economic School); Stefania Minardi (Department of Economics, New York University)
    Abstract: Warm-glow refers to other-serving behavior that is valuable for the actor per se, apart from its social implications. We provide axiomatic foundations for warm-glow by viewing it as a form of preference for larger choice sets, in the sense of the literature on freedom of choice. Specically, an individual who experiences warm-glow prefers the freedom to be sel…sh: she values the availability of sel…sh options even if she plans to act unsel…shly. Our theory also provides foundations for empirically distinguishing between warm-glow and other motivations for prosocial behavior. The implied choice behavior subsumes Riker and Ordeshook (1968) and Andreoni (1990).
    Keywords: Altruism, Warm-Glow, Freedom of Choice, Philanthropy, Charitable Giving, Public Goods
    JEL: D11 D64 D81
    Date: 2011–12

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