nep-pub New Economics Papers
on Public Finance
Issue of 2012‒10‒20
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Income Taxation in a Life Cycle Model with Human Capital By Michael P. Keane
  2. Optimal capital taxation with idiosyncratic investment risk By Vasia Panousi; Catarina Reis
  3. Estimating dynamic tax revenue elasticities for Germany By Koester, Gerrit B.; Priesmeier, Christoph
  4. Competitive Altruism and Endogenous Reference Group Selection in Private Provision of Environmental Public Goods By Heinz Welsch; Jan Kühling

  1. By: Michael P. Keane (Nuffield College, University of Oxford)
    Abstract: I examine the effect of labor income taxation in life-cycle models where work experience builds human capital. In this case, the wage no longer equals the opportunity cost of time – which is, instead, the wage plus returns to work experience. This has a number of interesting consequences. First, the data appear consistent with much larger labor supply elasticities than most prior work suggests. Second, again contrary to conventional wisdom, permanent tax changes can have larger effects on current labor supply than temporary tax changes. Third, human capital amplifies the labor supply response to permanent tax changes in the long-run, as a permanent tax reduces the rate of human capital accumulation (reducing worker productivity). Fourth, for plausible parameter values, welfare losses from proportional income taxation are likely to be much larger than conventional wisdom suggests.
    Date: 2012–10–15
  2. By: Vasia Panousi; Catarina Reis
    Abstract: We examine the optimal taxation of capital in a Ramsey setting of a general-equilibrium heterogeneous-agent economy with uninsurable idiosyncratic investment or capital-income risk. We prove that the ex ante optimal tax, evaluated at steady state, maximizes human wealth, namely the present discounted value of agents' income from sources that are not subject to capital risk. Furthermore, when the amount of idiosyncratic risk in the economy is higher than a minimum lower bound, the optimal tax is positive and it is precisely the tax that maximizes the economy-wide aggregates, such as the capital stock and output. By contrast, when the amount of risk is exogenously very low, the social planner finds it optimal to increase social risk taking by subsidizing investment in capital.
    Date: 2012
  3. By: Koester, Gerrit B.; Priesmeier, Christoph
    Abstract: We analyse tax revenue elasticities by applying dynamic models to a new disaggregated dataset for Germany, which is adjusted for the effects of tax reforms. We estimate long-run elasticities that are substantially lower than in comparable studies for profit-related taxes and are slightly lower for value-added taxes, whereas the long-run elasticity for wage taxes is close to the consensus estimate in the literature. Additionally, we find that differences between short- and long-run elasticities are particularly important with respect to profit-related taxes. Here we estimate a far lower contemporaneous response to tax base changes than other studies and a dynamic reaction pattern spanning several years, which can be explained, for example, by tax collection lags. --
    Keywords: Dynamic tax revenue elasticities,Disaggregated analysis,Error correction models
    JEL: H2 H24 H25 E26
    Date: 2012
  4. By: Heinz Welsch (University of Oldenburg, Department of Economics); Jan Kühling (University of Oldenburg, Department of Economics)
    Abstract: We develop and test a model of social comparison in which individuals gain status through pro-social behavior (competitive altruism) and in which they endogenously choose the reference group and associated reference standard involved in signaling status (reference group selection). In our framework of private provision of environmental public goods, the optimal reference standard involves a balance between the magnitude of the status signal (implying a low reference standard) and the higher value of the signal in a greener social environment. By using a unique set of survey data we find evidence of (a) respondents behaving in a competitively altruistic fashion and (b) reference persons’ intensity of pro-environmental behavior depending on relevant attitudes of the respondents, consistent with predictions from our framework of reference group selection.
    Keywords: competitive altruism; reference groups; endogenous reference standard; pro-environmental behavior; private public good provision
    JEL: D64 H31 H41 Q00
    Date: 2012–10

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