nep-pub New Economics Papers
on Public Finance
Issue of 2012‒07‒29
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Redistributive Preferences, Redistribution, and Inequality: Evidence from a Panel of OECD Countries By Kuhn, Andreas
  2. Fiscal Union in Europe? Redistributive and Stabilising Effects of an EU Tax-Benefit System By Bargain, Olivier; Dolls, Mathias; Fuest, Clemens; Neumann, Dirk; Peichl, Andreas; Pestel, Nico; Siegloch, Sebastian
  3. Business Taxation and Wages: Evidence from Individual Panel Data By Bauer, Thomas K.; Kasten, Tanja; Siemers, Lars
  4. Asymmetric taxation of profits and losses and its influence on investment timing: Paradoxical effects of tax increases By Mehrmann, Annika; Schneider, Georg; Sureth, Caren
  5. The Binary Choice Approach of Laffer Curve By Mihai Mutascu
  6. The use of tax havens in exemption regimes By Gumpert, Anna; Hines Jr., James R.; Schnitzer, Monika
  7. Dynamic Tax Competition under Asymmetric Productivity of Public Capital By Hiroki Tanaka; Masahiro Hidaka
  8. Fiscal Multipliers and Public Debt Dynamics in Consolidations By Jocelyn Boussard; Francisco de Castro; Matteo Salto

  1. By: Kuhn, Andreas (University of Zurich)
    Abstract: This paper describes individuals’ inequality perceptions, distributional norms, and redistributive preferences in a panel of OECD countries, primarily focusing on the association between these subjective measures and the effective level of inequality and redistribution. Not surprisingly, the effective level of redistribution (after tax-and-transfer inequality) is positively (negatively) correlated with redistributive preferences. There is also evidence showing that the subjective and objective dimension of inequality and redistribution are, at least partially, linked with individuals’ political preferences and their voting behavior. The association between objective and subjective measures of inequality and redistribution vanishes, however, once more fundamental country characteristics are taken into account. This suggests that these characteristics explain both redistributive preferences as well as the effective level of redistribution and after tax-and-transfer inequality.
    Keywords: inequality perceptions, distributional norms, redistributive preferences, inequality, redistribution, political preferences
    JEL: D31 D63 J31
    Date: 2012–07
  2. By: Bargain, Olivier; Dolls, Mathias; Fuest, Clemens; Neumann, Dirk; Peichl, Andreas; Pestel, Nico; Siegloch, Sebastian
    Abstract: The current debt crisis has given rise to a debate about deeper fiscal integration in Europe. The view is widespread that moving towards a fiscal union would have a stabilising effect in the event of macroeconomic shocks. In this paper we study the economic effects of introducing two elements of a fiscal union: Firstly, an EU-wide tax and transfer system and secondly, an EU-wide system of fiscal equalisation. Using the European tax-benefit calculator EUROMOD, we exploit representative household microdata from 11 Eurozone countries to simulate these policy reforms and to study their effects on the distribution of income as well as their impact on automatic fiscal stabilisers. We find that replacing one third of the national tax and transfer systems by a European system would lead to significant redistributive effects both within and across countries. These effects depend on income levels and the structures of the existing national tax and transfer systems.The EU system would improve fiscal stabilisation especially in credit constrained countries. It would absorb between 10 and 15 per cent of a macroeconomic income shock. Introducing a fiscal equalisation system based on taxing capacity would redistribute revenues from high to low income countries. The stabilisation properties of this system, however, are ambiguous. This suggests that not all forms of fiscal integration will improve macroeconomic stability in the Eurozone.
    Date: 2012–07–07
  3. By: Bauer, Thomas K. (RWI); Kasten, Tanja (RWI); Siemers, Lars (University of Siegen)
    Abstract: Empirical evidence on the degree of business-tax shifting to employees via the wage level is highly controversial and rare. It remains open to which extent the tax burden is shifted, whether there are differences for tax increases and decreases, or whether there exists some treatment heterogeneity, that drive the respective results. Using a large administrative panel data set, we exploit the regional variation of the German business income taxation to address these issues. Our results suggest an elasticity of wages with respect to business taxes that ranges between -0.28 to -0.46, once we control for invariant unobserved regional and individual characteristics. Workers with low bargaining power, e.g., low-skilled, are affected most from business tax shifting, indicating that business-tax incidence involves distributional effects. Finally, we find evidence for an asymmetric tax incidence.
    Keywords: tax incidence, profit taxation, wages, asymmetric effects
    JEL: H22 H25 J31 J38
    Date: 2012–07
  4. By: Mehrmann, Annika; Schneider, Georg; Sureth, Caren
    Abstract: Applying a time-discrete investment model and a setting with an entry and an exit option and cash flow uncertainty we present a dynamic analysis of the impact of various loss offset regimes on risky investment timing decisions. We find that a tax system with loss offset restrictions will not distort timing decisions if the investor can exit the project. By contrast, in a setting without exit flexibility a tax discrimination against losses can cause paradoxical effects. In that respect, we analytically identify conditions for higher taxes to increase investors' propensity to choose early investment and hence accelerate entrepreneurial investment. --
    Keywords: asymmetric taxation,loss offset restrictions,timing flexibility,investment decisions,uncertainty,tax effects
    JEL: H21 H25
    Date: 2012
  5. By: Mihai Mutascu (Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, Romania)
    Abstract: The paper analyzes empirically, based on “Laffer effects”, in Romania’s case, the relationship between tax revenues (dependent variable) and tax rates (independent variables). The analysis is based on the construction of a binary choice model (Linear Probit Model) and the data set is covering the period 1999 - 2009 (first trimester), with quarterly frequency. The main results show that the two “Laffer effects” have a different probability of existence. If the government knows which the maximum probabilities are for each of the two effects, then he can construct a coherent tax policy arrangement that raise or decrease the tax revenues, based on flat or progressive tax systems (the tax evasion is considered to be constant).
    Keywords: Tax revenues, Tax rates, Laffer curve, Effects, Probability, Probit analysis
    JEL: H21 H71 E62 C35
    Date: 2012–04–10
  6. By: Gumpert, Anna; Hines Jr., James R.; Schnitzer, Monika
    Abstract: This paper analyzes the tax haven investment behavior of multinational firms from a country that exempts foreign income from taxation. High foreign tax rates generally encourage firms to invest in tax havens, though significant costs of reallocating taxable income dampen these incentives. The behavior of German manufacturing firms from 2002-2008 is consistent with this prediction: at the mean, one percentage point higher foreign tax rates are associated with three percentage point greater likelihoods of owning tax haven affiliates. This contrasts with earlier evidence for U.S. firms subject to home country taxation, which are more likely to invest in tax havens if they face lower foreign tax rates. Foreign tax rates appear to be unrelated to tax haven investments of German firms in service industries, possibly reflecting the difficulty they face in reallocating taxable income.
    Keywords: Tax Havens; Multinational Firms; Tax Avoidance; Profit Shifting; Manufacturing FDI; Service FDI
    JEL: H87 F23
    Date: 2012–04
  7. By: Hiroki Tanaka; Masahiro Hidaka
    Abstract: We here expand the static tax competition models in symmetric small regions, which were indicated by Zodrow and Mieszkowski (1986) and Wilson (1986), to a dynamic tax competition model in large regions, taking consideration of the regional asymmetry of productivity of public capital and the existence of capital accumulation. The aim of this paper is to verify how the taxation policy affects asymmetric equilibrium based on a simulation analysis using an overlapping generations model in two regions. It is assumed that the public capital as a public input is formed on the basis of the capital tax of local governments and the lump-sum tax of the central government. As demonstrated in related literature, the optimal capital tax rate should become zero when the lump-sum tax is imposed only on older generations, however, the optimal tax rate may become positive when it is imposed proportionally on younger and older generations. In the asymmetric equilibrium, several cooperative solutions can possibly exist which can achieve a higher welfare standard than the actualized cooperative solution either in Region1 or 2. JEL classification Ôºö H21; H42; H71; H77; R13; R53 Keywords Ôºö Tax competition, Capital taxation, Capital accumulation, Public inputs, Infrastructure
    Date: 2011–09
  8. By: Jocelyn Boussard; Francisco de Castro; Matteo Salto
    Abstract: The success of a consolidation in reducing the debt ratio depends crucially on the value of the multiplier, which measures the impact of consolidation on growth, and on the reaction of sovereign yields to such a consolidation. We present a theoretical framework that formalizes the response of the public debt ratio to fiscal consolidations in relation to the value of fiscal multipliers, the starting debt level and the cyclical elasticity of the budget balance. We also assess the role of markets confidence to fiscal consolidations under alternative scenarios. We find that with high levels of public debt and sizeable fiscal multipliers, debt ratios are likely to increase in the short term in response to fiscal consolidations. Hence, the typical horizon for a consolidation during crises episodes to reduce the debt ratio is two-three years, although this horizon depends critically on the size and persistence of fiscal multipliers and the reaction of financial markets. Anyway, such undesired debt responses are mainly short-lived. This effect is very unlikely in non-crisis times, as it requires a number of conditions difficult to observe at the same time, especially high fiscal multipliers.
    JEL: E62 H63
    Date: 2012–07

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