nep-pub New Economics Papers
on Public Finance
Issue of 2012‒07‒08
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Effect of expenditures in personal income taxation on horizontal equity in Croatia By Hrvoje Šimović
  2. On the incidence of a financial transactions tax in a model with fire sales By Felix Bierbrauer

  1. By: Hrvoje Šimović
    Abstract: Tax expenditures include all reliefs and other tax procedures used for reducing or deducting the amount of tax that would otherwise have to be paid by taxpayers. There are many personal income tax expenditures in Croatia and they represent an important segment of the tax and social policies. This paper analyses the effect of expenditures in personal income taxation in Croatia on horizontal equity. Accordingly, the analysis has been made according to sources of income. The paper includes the period since 2001, when most reliefs that are still in effect were introduced into the personal income tax system. The analysis includes only those taxpayers who filed annual personal income tax returns, which is a precondition for acquiring most of the tax reliefs. The research findings show that tax reliefs significantly reduce the amount of taxable income, and the differences in the effective tax burden between the analyzed sources of income show that there is horizontal inequity in the personal income tax in Croatia.
    Keywords: personal income tax, annual tax return, tax expenditures, reliefs, horizontal equity, Croatia
    JEL: H24
    Date: 2012–06–14
  2. By: Felix Bierbrauer
    Abstract: This paper studies the impact of a financial transactions tax on a financial market where financial institutions trade with each other. Assets are marked to the market and financial institutions with negative equity are forced out of business. There are two main results: First, if all banks have enough liquidity so that they can honor their short-term obligations, a financial transactions tax is entirely neutral. Second, in a model with correlated investment risk and short-term financing of banks, a financial transactions tax contributes to financial distress and undoes other policy measures that are used to stabilize financial markets.
    Keywords: Financial transactions tax, financial stability, financial markets, cash-in-the-market-pricing, marking-to-market
    JEL: H22 G18 G21 G28
    Date: 2012–06–26

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