nep-pub New Economics Papers
on Public Finance
Issue of 2012‒07‒14
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Bunching, Income Shifting and Self-employment By Daniel le Maire; Bertel Schjerningo
  2. Income, the Earned Income Tax Credit, and Infant Health By Hilary W. Hoynes; Douglas L. Miller; David Simon
  3. Optimal Libertarian Sin Taxes By Matteo Bassi
  4. A common corporate tax base for Europe: An impact assessment of the draft council directive on a CC(C)TB By Spengel, Christoph; Ortmann-Babel, Martina; Zinn, Benedikt; Matenaer, Sebastian
  5. Ontario's Tax on the Rich: Grasping at Straw Men By Alexandre Laurin
  6. Property Tax Reform in Vietnam: A Work in Progress By Hong-Loan Trinh; William J. McCluskey
  7. Competition for Migrants in a Federation: Tax or Transfer Competition? By Marko Koethenbuerger

  1. By: Daniel le Maire (Department of Economics, University og Copenhagen); Bertel Schjerningo (Department of Economics, University og Copenhagen)
    Abstract: This paper proposes a dynamic extension to Saez (2010) bunching formula that allows us to distinguish bunching based on real responses and income shifting. We provide direct evidence of income shifting and pronounced bunching in taxable income for the case of Danish self-employed. If income shifting was neglected in this case, we would conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the observed bunching in taxable income for the self-employed is driven by intertemporal income shifting, implying a structural elasticity in the range of 0.14-0.20
    Keywords: Self-employment, tax bunching, retained pro?ts, tax avoidance, income shifting
    JEL: H20 J20
    Date: 2012–05
  2. By: Hilary W. Hoynes; Douglas L. Miller; David Simon
    Abstract: This paper evaluates the health impact of a central piece in the U.S. safety net for families with children: the Earned Income Tax Credit. Using tax-reform induced variation in the federal EITC, we examine the impact of the credit on infant health outcomes. We find that increased EITC income reduces the incidence of low birth weight and increases mean birth weight. For single low education (<= 12 years) mothers, a policy-induced treatment on the treated increase of $1000 in EITC income is associated with 6.7 to 10.8% reduction in the low birth weight rate, with larger impacts for births to African American mothers. These impacts are evident with difference-in-difference models and event study analyses. Our results suggest that part of the mechanism for this improvement in birth outcomes is the result of more prenatal care and less negative health behaviors (smoking). We find little role for changes in health insurance. We contribute to the literature by establishing that an exogenous increase in income can improve health, and illustrating a health impact of a non-health program. More generally, we demonstrate the potential for positive external benefits of the social safety net.
    JEL: H2 H51 I38
    Date: 2012–07
  3. By: Matteo Bassi (Università di Napoli Federico II and CSEF)
    Abstract: This paper studies the optimal fiscal treatment of addictive goods (cigarettes, drugs, fatty foods, alcohol, gambling etc.). It shows that, when agents have private information about their productivity levels and their degree of rationality, the Atkinson and Stiglitz result of optimal uniform commodity taxation does not hold: addictive and non-addictive goods should be taxed at different rates. Depending on the direction of redistribution, the addictive good should be taxed more or less than the non-addictive good. Differential commodity taxation is not driven by the planner’s paternalism, but only by incentive considerations. A tax authority which fully respects consumers’ sovereignty taxes the consumption of addictive and non-addictive goods at different rates to improve screening of types and increase income redistribution.
    Keywords: Bounded Rationality, Optimal Taxation, Minimal Paternalism, Multidimensional Screening
    JEL: A12 D91 E21 H55
    Date: 2012–07–05
  4. By: Spengel, Christoph; Ortmann-Babel, Martina; Zinn, Benedikt; Matenaer, Sebastian
    Abstract: After intensive and extensive preparation, the European Commission released the long-awaited proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) on March 16, 2011. In the context of the Europe 2020 Strategy, major objectives of the proposed CCCTB are the elimination of transfer pricing concerns, the removal of double taxation due to conflicting tax claims between Member States and, ofcourse, the reduction of tax compliance costs. However, as the second and the third step of the proposed CCCTB, i.e. the consolidation and the allocation mechanism, still suffer from considerable shortcomings, we recommend introducing the CCCTB in two steps. In this context, our paper focuses on the first step of a CCCTB, i.e. the common corporate tax base (CCTB). The paper combines qualitative and quantitative analyses on the key differences and similarities between the proposed CCTB and current tax accounting practice in all 27 Member States, Switzerland and the U.S. It offers not only a broad geographical scope, but also great detail in analyzing the differences in tax accounting and quantifying the change in tax burden induced by the introduction of a CCTB in each Member State, Switzerland and the U.S. --
    Keywords: CCCTB,Corporate Taxation,Effective Tax Burden,European Tax Analyzer
    JEL: H20 H25
    Date: 2012
  5. By: Alexandre Laurin (C.D. Howe Institute)
    Abstract: Ontario’s new “tax on the rich,” which was introduced in the 2012 Budget, affects 25,000 high-income earners and their families. These families matter a lot for the province’s fortunes: about one of every five income tax dollars in Ontario already comes out of their pockets. Ontario’s personal income tax system already redistributes more income than most other provinces. The province’s top 1 percent of earners shoulder more than one-quarter of all income taxes, while the bottom 75 percent shoulder about 12 percent. The new tax on high-income earners will likely create more economic costs than benefits: taxpayers’ behavioural responses will reduce revenue over the long run by more than the province can expect to collect from the tax hike.
    Keywords: Fiscal and Tax Competitiveness, Ontario (Canada), tax increase, personal tax rate
    JEL: H24
    Date: 2012–06
  6. By: Hong-Loan Trinh (HEC Montreal); William J. McCluskey (University of Ulster)
    Abstract: In 2012, Vietnam will celebrate 25 years of economic reform and structural readjustment from a largely centralized, subsidized economy to one based on market principles. A major component of these reforms has involved establishing land and property rights, thereby giving individuals and organizations secure title to the property they occupy and use. The passing of various Land Laws has given legislative support to the concept of private property rights. This represents a significant ideological change, given that land in Vietnam has always been considered to belong to the State. In conjunction with these changes, focus has shifted to reforming the real property tax from a tax largely based on rice productivity to one based on ad valorem principles. This paper reviews existing property-based taxes, highlighting their weaknesses and outlining the potential for a land tax to effectively replace the current property tax.
    Keywords: Vietnam, land ownership, land tax, property taxes, property tax reform, area-based taxation
    JEL: H24 Q15
    Date: 2012–03
  7. By: Marko Koethenbuerger (University of Copenhagen and CESifo)
    Abstract: Corporate tax systems generally maintain a sharp distinction between debt and equity, however, the advent of hybrid instruments has transformed the universe offinancial instruments into a debt-equity continuum and tax systems therefore need to draw lines that distinguish the set of debt instruments from the set of equity instruments. When countries draw these lines differently, there is a scope for international tax planning: A multinational firm financing a foreign investment with a hybrid instrument categorized as debt in the host country and equity in the home country combines the benfits of tax deductible interest payments in the host country and tax favored dividend payments in the home country. This paper develops a theoretical model of strategic line drawing between debt and equity in the presence of hybrid instruments. In the absence of international cooperation, lines are generally drawn in a globally suboptimal manner. The inefficiency ciency typically derives from the endeavors of policymakers to draw lines in ways that facilitate hybrid financing by domestic multinational firms and impede hybrid financing by foreign multinational firms with a view to eroding foreign taxation of domestic firms and enforcing domestic taxation of foreign firms.
    Keywords: Migration, Redistribution, Income Taxation, Government Strategy, Endogenous Type of Competition
    JEL: H7 J2 F2
    Date: 2012–01

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