nep-pub New Economics Papers
on Public Finance
Issue of 2012‒08‒23
nineteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The impact of tax policy on the welfare state By Brad, Anca Maria
  2. The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries By Jorge Martinez-Vazquez; Blanca Moreno-Dodson; VIoleta Vulovic
  3. Trends in Personal Income Tax and Employee Social Security Contribution Schedules By Carolina Torres; Kirsti Mellbye; Bert Brys
  4. Income Taxation of U.S. Households: Facts and Parametric Estimates By Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
  5. Top Income Shares and Budget Deficits By Santo Milasi
  6. Shifting from Social Security Contributions to Consumption Taxes: The Impact on Low-Income Earner Work Incentives By Alastair Thomas; Fidel Picos-Sánchez
  7. The Costs of VAT: A Review of the Literature By Luca Barbone; Richard M. Bird; Jaime Vazquez-Caro
  8. Value-added Taxation and Consumption By James Alm; Asmaa El-Ganainy
  9. The GST/HST: Creating an Integrated Sales Tax in a Federal Country By Richard M. Bird
  10. Rethinking the Research Paradigms for Analyzing Tax Compliance Behavior By James Alm; Erich Kirchler; Stephan Muehlbacher; Katharina Gangl; Eva Hofmann; Christoph Kogler; Maria Pollai
  11. When Samuelson Met Veblen Abroad: National and Global Public Good Provision when Social Comparisons Matter By Aronsson, Thomas; Johansson-Stenman, Olof
  12. Does Online Cross-border Shopping Affect State Use Tax Liabilities? By James Alm; Mikhail I. Melnik
  13. Rethinking Local Government Reliance on the Property Tax By James Alm; Robert D. Buschman; David L. Sjoquist
  14. Measuring the Tax Revenue Elasticity to Output in Dynamic Stochastic General Equilibrium Model By Kazuki Hiraga
  15. From Regressive Pollution Taxes to Progressive Environmental Tax Reforms By Mireille Chiroleu-Assouline; Mouez Fodha
  16. Taxing Sweets: Sweetener Input Tax or Final Consumption Tax? By Miao, Zhen; Beghin, John C.; Jensen, Helen H.
  17. Who Benefits from Tax Evasion? By James Alm; Keith Finlay
  18. Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies By James Alm
  19. The 2008 Corporate Income Tax Reform and Its Contribution to Poverty Reduction in Indonesia By Teguh Dartanto

  1. By: Brad, Anca Maria
    Abstract: The paper seeks to find the impact of tax policy on income and wealth redistribution, as well as its effects on welfare. Redistribution through transfers has a major contribution to reducing inequality and polarization of income. The fiscal reforms in present-day circumstances imply as outcome the so called “tax uniformity”, embedding income redistribution through budgetary mechanisms, an arrangement that greatly depends on the alternative chosen by the authorities for the distribution of tax burden among various categories of contributors. In Eastern European economies, under the absence of a sustainable economic growth and structural reforms, flat taxes can lead to polarization of income. The authors argue that if progressive rates are feasible in eastern countries, taxation reconsideration generates economic effects triggered by the change in tax burden and social effects triggered by a decrease in the unemployment, living conditions, education and labour.
    Keywords: tax policy; redistribution; flat tax; progressive rates; welfare state
    JEL: E62 D31 H20
    Date: 2012
  2. By: Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Blanca Moreno-Dodson (The World Bank); VIoleta Vulovic (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: The main focus of this paper is on the potential role that taxation and public expenditure policies play in general in affecting income distribution. We find that progressive personal income taxes and corporate income taxes reduce income inequality. The effect of corporate income taxes seems to be eroded away in open or globalized economies. We also generally find that general consumption taxes, excise taxes and customs duties have a negative impact on income distribution. On the expenditure side, we find that higher shares of GDP on social welfare, education, health and housing public expenditures have a positive impact on income distribution.
    Keywords: Tax Policy, Public Expenditures, Income Distribution, Tax Progressivity
    Date: 2012–05–30
  3. By: Carolina Torres; Kirsti Mellbye; Bert Brys
    Abstract: Policymakers cannot directly adjust the tax burden of labour income, but they can reform the statutory elements of the tax system, which ultimately determine average and marginal tax rates. To shed light on the determinants of average and marginal personal tax rates, this paper discusses historical and cross-country trends in statutory personal income tax rates, the income thresholds where personal income tax and employee social security contribution rates apply, and other statutory provisions that shape the tax burden on labour income in OECD countries. Trends in the difference between statutory, average and marginal personal income tax rates are also analysed and graphically illustrated. The impact of employee social security contributions on top marginal personal tax rates is also discussed. The most pronounced trend that emerged from 2000 to 2010 in OECD countries is a reduction in top statutory personal income tax rates. This trend was accompanied by reductions in the threshold where the top rate applies, as well as reductions in the statutory rate applicable at average wage earnings.<P>Évolution des barèmes des impôts sur le revenu des personnes physiques et des cotisations de sécurité sociale<BR>Les responsables politiques ne sont pas en mesure d’ajuster directement la charge fiscale des revenus du travail mais ils ont la possibilité de réformer les aspects du système fiscal qui sont définis par la loi, et qui déterminent en définitive les taux moyens et marginaux d’imposition. Afin de mettre en lumière les déterminants des taux moyens et marginaux d’imposition des revenus des personnes physiques, ce document étudie, dans une optique rétrospective et internationale, l’évolution des taux légaux de l’impôt sur le revenu des personnes physiques, les seuils d’application de l’impôt sur le revenu et des cotisations salariales de sécurité sociale, ainsi que les autres dispositions légales qui influent sur la charge fiscale des revenus du travail dans les pays de l’OCDE. L’évolution de la différence entre les taux légaux, moyens et marginaux de l’impôt sur le revenu des personnes physiques est également analysée et représentée graphiquement. Par ailleurs, ce document examine l’impact des cotisations salariales de sécurité sociale sur les taux marginaux maximums d’imposition des revenus des personnes physiques. La tendance la plus nette qui se dégage dans les pays de l’OCDE entre 2000 et 2010 est la réduction des taux légaux maximums de l’impôt sur le revenu des personnes physiques. Cette évolution s’est accompagnée de réductions du seuil d’application du taux maximum, ainsi que de réductions du taux légal applicable au salaire moyen.
    Keywords: personal income tax, social security contributions, tax exemptions, statutory tax rate, surtax, exonération fiscale, cotisations de sécurité sociale, impôt sur le revenu des personnes physiques, taux légal d’imposition, surtaxe
    JEL: H24 H55 H71
    Date: 2012–07–24
  4. By: Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
    Abstract: We use micro data from the U.S. Internal Revenue Service to document how Federal Income tax liabilities vary with income, marital status and the number of dependents. We report facts on the distributions of average taxes, properties of the joint distributions of taxes paid and income, and discuss how taxes are affected by marital status and the number of children. We also provide multiple parametric estimates of tax functions for use in applied work in macroeconomics and public finance.
    Keywords: Households; Tax Progressivity; Taxation
    JEL: E62 H24 H31
    Date: 2012–08
  5. By: Santo Milasi (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: During the last thirty years most OECD countries have accumulated large public debts. The same period has been characterized by a considerable increase in the concentration of income at the top of the distribution and by substantial cuts to taxation imposed on high incomes. The paper argues that the concentration of income at the top, along with the decreasing taxation imposed on top incomes, may have affected OECD countries' fiscal performances in recent decades. Using a panel of 17 OECD countries between 1975 and 2005, the paper presents the first reported evidence of a positive relationship between the top 1 percent income share and budget deficits. Moreover, the disaggregated analysis of the budget components suggests that such result is due to a negative relationship between concentration of income at the top and budget revenues.
    Keywords: Budget Deficits, Budget Revenues, Income Inequality, Top Income Shares, Top Marginal Tax Rates
    JEL: D31 E62 H20 H62
    Date: 2012–08–01
  6. By: Alastair Thomas; Fidel Picos-Sánchez
    Abstract: This paper investigates the merits of increasing work incentives for low-income workers by shifting part of the tax burden from social security contributions (SSC) to consumption taxes (specifically VAT) in 13 European OECD countries. Simulation results based on household budget survey microdata show that such reforms will increase work incentives for low-income workers at both participation and hours-worked margins. However, these increases will generally be small as part of the VAT increase will still be borne by low-income workers. This, combined with difficulty targeting the reforms and potential equity concerns regarding increasing the tax burden on non-workers, suggests that alternate funding sources to a VAT increase should also be considered to fund SSC reductions.<P>Le remplacement des cotisations de sécurité sociale par des impôts sur la consommation : incidence sur l'incitation des salariés titulaires de faibles revenus à travailler<BR>Ce document étudie le bien-fondé des mesures prises dans 13 pays européens de l?OCDE pour renforcer l?incitation au travail des salariés à faibles revenus par un transfert partiel de la charge fiscale des cotisations de sécurité sociale (CSS) vers les impôts sur la consommation (plus précisément la TVA). Les résultats de simulations fondées sur des données microéconomiques obtenues à la suite d?enquêtes sur les budgets des ménages montrent que ces réformes renforcent l?incitation des titulaires de faibles revenus à travailler, aussi bien pour ce qui est du choix d?accepter un emploi que du nombre d?heures ouvrées. Cependant, ce renforcement sera généralement faible, dans la mesure où une partie de l?augmentation de la TVA restera à la charge des salariés à faibles revenus. Ce fait, combiné à la difficulté de cibler les réformes et aux problèmes d?équité que risque de poser l?augmentation de la charge fiscale pesant sur des non-salariés, montre qu?il serait préférable de rechercher d?autres sources que la TVA pour financer des réductions des CSS.
    Keywords: work incentives, VAT, consumption tax, social security contributions, TVA, cotisations de sécurité sociale, impôts sur la consommation, incitation à travailler
    JEL: H21 H23 H24 H55
    Date: 2012–07–24
  7. By: Luca Barbone; Richard M. Bird (University of Toronto); Jaime Vazquez-Caro
    Abstract: This paper reviews the literature on the costs of VAT, beginning with a review of concepts with regard to different aspects of administrative and compliance costs and then a review of quantitative estimates of such costs. It concludes with a brief discussion of VAT non-compliance and fraud with special reference to European Union the European VAT context, including some suggestive evidence on the trade-off between compliance costs and fraud.
    Date: 2012–04–18
  8. By: James Alm (Department of Economics, Tulane University); Asmaa El-Ganainy (Fiscal Affiars Department, International Monetary Fund (IMF))
    Abstract: One of the main rationales for taxing consumption rather than income is that it is believed that consumption taxes discourage consumption, encourage savings, and thus generate higher economic growth. However, empirical evidence on the actual effectiveness of consumption taxes in stimulating savings is very limited. In this paper, we estimate the impact of a broad-based consumption tax, the value-added tax (VAT), on the aggregate consumption of fifteen European Union countries over the period 1961-2005. Our empirical results indicate, across a variety of estimation methods and specifications, that a one percentage point increase in the VAT rate leads to roughly a one percent reduction in the level of aggregate consumption in the short run and to a somewhat larger reduction in the long run.
    Keywords: value-added taxation, consumption taxation, savings, economic growth, generalized methods of moments estimation
    JEL: H20 H25 H31
    Date: 2012–07
  9. By: Richard M. Bird (University of Toronto)
    Abstract: Canada is not a country with a reputation for bold experimentation. However, Canadian experience demonstrates conclusively that an invoice-credit, destination-based value-added tax (VAT) is workable at the subnational level, with both federal and provincial governments retaining full control over the rates of their sales taxes as well as retaining a surprising degree of policy freedom with respect to the base of the tax. As this paper shows against the background of a concise history of sales taxation in Canada, it has taken decades of federal-provincial negotiations to produce the present substantially integrated national and provincial sales tax system. Moreover, the process not yet complete and the results are far from perfect. Nonetheless, Canada has shown that not only can VATs be introduced at the subnational level but that they can work surprisingly well – at least in a country with an over-riding national VAT.
    Keywords: Canada, VAT, subnational taxes, intergovernmental fiscal relations
    Date: 2012–04–17
  10. By: James Alm (Department of Economics, Tulane University); Erich Kirchler (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Stephan Muehlbacher (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Katharina Gangl (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Eva Hofmann (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Christoph Kogler (Department of Applied Psychology: Work, Education and Economy, University of Vienna); Maria Pollai (Department of Applied Psychology: Work, Education and Economy, University of Vienna)
    Abstract: In this paper we give our perspective on the different paradigms that have shaped – and seem likely to shape in the future – research in the field of tax compliance behavior. These research paradigms include viewing tax evasion as a decision under risk made by a single taxpayer, as a social dilemma in which there is a tension between individual interests (e.g., cheating on one's taxes) and collective goals (e.g., providing public goods), as a series of decisions made by many different types of taxpayers, and as a psychological contract between tax authorities and taxpayers. We argue that these different paradigms require that particular attention be paid to the main "actors in the field", which involves going beyond a focus on a single taxpayer to consider other taxpayers, tax accountants, the tax authorities, and the government. The ways in which these actors interact in different climates, especially the dynamics of power and trust between the actors, must also be considered. We conclude with a discussion of a framework – the "slippery slope framework" – that attempts to synthesize these different research paradigms. Throughout, we illustrate our arguments by reference to research that focuses especially on the European experience.
    Keywords: tax evasion, behavioral economics, social norms, "slippery slope"
    JEL: H26 D03
    Date: 2012–07
  11. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg)
    Abstract: This paper derives Pareto efficient policy rules for the provision of national as well as global public goods in a two-country world, where each individual cares about relative consumption within as well as between countries. Furthermore, we compare these policy rules with those that follow from a non-cooperative Nash equilibrium. The results show that both global and national public goods are systematically under-provided in Nash equilibrium under such relative consumption concerns.
    Keywords: Public goods; relative consumption; inter-jurisdictional comparison; status; positional goods
    JEL: D03 D62 H40
    Date: 2012–08–16
  12. By: James Alm (Department of Economics, Tulane University); Mikhail I. Melnik (Department of Business Administration, School of Engineering Technology and Management, Southern Polytechnic State University)
    Abstract: How does online cross-border shopping affect state use tax liabilities? We collect our own data on actual online cross-border shopping transactions from, focusing upon a "representative" commodity classification and a "typical" day. These data allow us to examine the extent of actual online cross-border shopping by buyers, and the subsequent potential impact on state use tax liabilities of buyers. Our results indicate that online cross-border shopping is highly prevalent on eBay, with out-of-state purchases accounting for on average 94 percent of the volume of a state's online purchase transactions. Even so, given the limited volume of eBay- based transactions relative to total sales transactions, the likely impact of cross-border transactions on state use tax revenue streams is negligible, even if we assume full buyer compliance with state use taxes.
    Keywords: online commerce, sales taxes, nexus, tax evasion
    JEL: H71 H73
    Date: 2012–07
  13. By: James Alm (Department of Economics, Tulane University); Robert D. Buschman (Fiscal Research Center, Andrew Young School of Policy Studies, Georgia State University); David L. Sjoquist (Economics Department, Georgia State University)
    Abstract: Historically, local governments in the United States have relied on the property tax as one of their main sources of own-source revenues. However, the recent collapse of housing prices and the resulting negative impact on local government budgets suggest that it may be opportune to rethink this strategy. In this paper we document the overall decline in property values in the United States in recent years, and we find that the impact is in the aggregate negative but that the impact varies significantly by state and by locality. We also examine the impact on local government revenues, and we again find substantial regional and local variation. Indeed, our data indicate that substantial numbers of local governments seem to have avoided the significant and negative budgetary impacts seen most clearly for state and federal governments, at least to date. We then focus specifically on the State of Georgia, in order to determine the ways in which local governments have responded to the economic recession. Our empirical analyses indicates that there are several factors causing changes in property tax revenues, but the dominant factor is changes in housing prices, with some significant lags. We conclude that local government reliance on the property tax has in fact been an advantage for many local governments in the current economic environment, and that such reliance is likely to continue in at least some form for the immediate future.
    Keywords: property tax; state and local finance; tax limitations; assessment; tax base elasticity
    JEL: H2 H7 R3 R5
    Date: 2012–07
  14. By: Kazuki Hiraga (Faculty of Economics, Keio University)
    Abstract: We use structural method, that is, Dynamic Stochastic General Equilibrium (DSGE) model with fiscal stabilization rules, for calculating the tax revenue elasticity rate and estimate more plausible value of it. In the short-run, the tax revenue elasticity to output takes negative value and, in medium-run, it takes quite large positive values (from 2.3 to 4) in both permanent and temporary positive productivity shocks. On the other hand, in the long-run, under permanent positive productivity shock remains nearly the value of the tax revenue elasticity converses to about 2.3. But, under temporary one, it decreases and reverses it.
    Date: 2012–07
  15. By: Mireille Chiroleu-Assouline (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Mouez Fodha (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, LEO - Université d'Orléans)
    Abstract: European countries have increased their use of environmental tax instruments by designing new tax bases. But, many countries have to face the opposition of the public opinion, for fear of the distributive consequences of these environmental tax reforms. This paper sheds light on the distributive consequences of environmental tax policies when households are heterogeneous. The objective is to assess whether an environmental tax reform could be Pareto improving, when the revenue of the pollution tax is recycled by a change in the labor tax properties. We show that, whatever the degree of regressivity of the environmental tax alone, it is possible to design a recycling mechanism that renders the tax reform Pareto improving, by simultaneously decreasing the average rate of the wage tax and increasing its progressivity.
    Keywords: Environmental tax reform; heterogeneity; welfare analysis; tax progressivity
    Date: 2012–07
  16. By: Miao, Zhen; Beghin, John C.; Jensen, Helen H.
    Abstract: In order to reduce obesity and associated costs, policymakers are considering various policies, including taxes, to change consumers’ high-calorie consumption habits. We investigate two tax policies aimed at reducing added sweetener consumption. Both a consumption tax on sweet goods and a sweetener input tax can reach the same policy target of reducing added sweetener consumption. Both tax instruments are regressive, but the associated surplus losses are limited. The tax on sweetener inputs targets sweeteners directly and causes about five times less surplus loss than the final consumption tax. Previous analyses have overlooked this important point.
    Keywords: consumption tax; demand; health policy; soda tax; sugar; added sweeteners
    JEL: I18 Q18
    Date: 2011–03–27
  17. By: James Alm (Department of Economics, Tulane University); Keith Finlay (Department of Economics, Tulane University)
    Abstract: In this paper, we examine the distributional effects of tax evasion, using results from theoretical, experimental, empirical, and especially the general equilibrium literatures on tax evasion. Much, if not all, of this evidence concludes that the main beneficiaries of successful tax evasion are the tax evaders themselves, with distributional effects that largely favor higher income individuals. However, when general equilibrium adjustments in commodity and factor prices are considered, the distributional effects become considerably more complicated. The work on tax compliance is also put in the broader context of the distributional effects of other types of criminal activities, where similar forces seem to be at work. We conclude with some suggestions for future research.
    Keywords: tax evasion, general equilibrium
    JEL: H26 H22 D03
    Date: 2012–07
  18. By: James Alm (Department of Economics, Tulane University)
    Abstract: In this paper, I assess what we have learned about tax evasion since Michael Allingham and Agnar Sandmo launched the modern analysis of tax evasion in 1972. I focus on three specific questions and the answers to these questions that have emerged over the years. First, how do we measure the extent of evasion? Second, how can we explain these patterns of behavior? Third, how can we use these insights to control evasion? In the process, I illustrate my own answers to these questions by highlighting various specific examples of research. My main conclusion is that we have learned many things but that we also still have many gaps in our understanding of how to measure, explain, and control tax evasion. I also give some suggestions – and some predictions – about where promising avenues of future research may lie.
    Keywords: tax evasion, behavioral economics, experimental economics
    JEL: H2 H26 D03 C9
    Date: 2012–07
  19. By: Teguh Dartanto (Institute for Economic and Social Research (LPEM FEUI), Faculty of Economics, University of Indonesia)
    Abstract: The CIT reform enacted by Law No.36 of 2008 cuts maximum tax rates from 30 per cent to 25 per cent and offers some incentives for business in Indonesia. This study aims at measuring the impacts of 2008 CIT reform on tax revenue and poverty. The 2008 CIT reform supported with the administrative reforms and the 2008 tax amnesty policy has increased new corporate tax payers by 422,407 and tax revenue by 53.95 per cent during 2009 to 2011. Further, the simulation result of CGE-Microsimulation shows that cutting the CIT rate from 30 per cent to 25 per cent will attract IDR 41.77 trillion of new investments, create 441,910 new job opportunities, boost 1.46 per cent of economic growth, decline 1 per cent of consumer price index, and raise averagely 1.5 per cent of wage rates. These macroeconomic changes contribute significantly to lift 1.88 million people (0.898 per cent) out of poverty.
    Keywords: Corporate Income Tax Reform, CGE, Microsimulation, Poverty, Indonesia
    JEL: C68 H25 I32 I38
    Date: 2012–04

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