nep-pub New Economics Papers
on Public Finance
Issue of 2012‒11‒17
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Labor Income Taxation By Thomas Piketty; Emmanuel Saez
  2. Structural Progression Measures for Dual Income Tax Systems By Arnaldur Sölvi Kristjánsson; Peter J. Lambert
  3. Capital Income Taxation and the Mirrlees Review By Patricia Apps; Ray Rees
  4. Optimal Taxation, Child Care and Models of the Household By Patricia Apps; Ray Rees
  5. Taxation trends in the European Union: 2012 edition By European Commission
  6. The Danish tax on saturated fat. Short run effects on consumption and consumer prices of fats By Jørgen Dejgård Jensen; Sinne Smed
  7. Social Spending, Taxes and Income Redistribution in Uruguay By Marisa Bucheli; Nora Lustig; Maximo Rossi; Florencia Amábile
  8. The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico and Peru: A Synthesis of Results By Nora Lustig; George Gray-Molina; Sean Higgins; Miguel Jaramillo; Wilson Jiménez; Veronica Paz; Claudiney Pereira; Carola Pessino; John Scott; Ernesto Yañez
  9. The social welfare function of forests in the light of the theory of public goods By Seregi, János; Lelovics, Zsuzsanna; Balogh, László
  10. Decentralized Governance and Preferences for Public Goods By Arze del Granado, F. Javier; Martinez-Vazquez, Jorge; McNab, Robert M.
  11. Student Loans in a Tiebout Model of Higher Education By Robert Schwager

  1. By: Thomas Piketty; Emmanuel Saez
    Abstract: This paper reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third, we consider optimal nonlinear income taxation with particular emphasis on the optimal top tax rate and the optimal profile of means-tested transfers. Fourth, we consider various extensions of the standard model including tax avoidance and income shifting, international migration, models with rent-seeking, relative income concerns, the treatment of couples and children, and non-cash transfers. Finally, we discuss limitations of the standard utilitarian approach and briefly review alternatives. In all cases, we use the simplest possible models and show how optimal tax formulas can be derived and expressed in terms of sufficient statistics that include social marginal welfare weights capturing society's value for redistribution, behavioral elasticities capturing the efficiency costs of taxation, as well as parameters of the earnings distribution. We also emphasize connections between actual practice and the predictions from theory, and in particular the limitations of both theory and empirical work in settling the political debate on optimal labor income taxation and transfers.
    JEL: H21
    Date: 2012–11
  2. By: Arnaldur Sölvi Kristjánsson (University of Iceland and Toulouse School of Economics); Peter J. Lambert (University of Oregon)
    Abstract: The structural progression of an income tax schedule measures how liabilities change with changes in the income being taxed. This paper extends the measurement of structural progression to a pure-form dual income tax (DIT) system, which combines progressive taxation of labour income with proportional taxation of income from capital at a lower rate. Firm links are obtained between structural progression and revenue responsiveness for a DIT, and we demonstrate how structural progression measures can aid in redistributive analysis, using Nordic data to highlight problems which can stem from pretax distributional changes. We conclude with an assessment of the new theoretical and empirical work that is now required, much of which will be data driven.
    Keywords: personal income tax, dual income tax, structural progression.
    JEL: D31 D63 H23
    Date: 2012–10
  3. By: Patricia Apps; Ray Rees
    Abstract: The Mirrlees Review of the UK tax system, together with its companion volume of research papers, can be expected to influence future discussions of tax reform. Indeed, this can already be recognised in the Henry Review. As far as income taxation is concerned, the most substantive recommendation of the Mirrlees Review is a move toward a system of consumption or expenditure taxation, by exempting the "normal return to saving and taxing only "excess returns on the same tax schedule as labour earnings. This paper argues against this direction of reform on the grounds that it is based on a model of household behaviour over the life cycle that ignores important aspects of reality. We present an alternative model, together with supporting empirical evidence. We go on to argue that, against the background of rising inequality and an aging population, the appropriate direction for reform is towards more progressive taxation of both labour earnings and capital income, although not necessarily under the same rate scale.
    Keywords: Optimal taxation, labour supply, capital income taxation, family life cycle, time allocation, saving, inequality
    JEL: H21 H24 H31 D13 D91 J22
    Date: 2012–11
  4. By: Patricia Apps; Ray Rees
    Abstract: This paper presents for the .rst time the properties of optimal piece-wise linear tax systems for two-earner households, based on joint and individual incomes respectively. A key contribution is the analysis of the interaction of second earner wage di¤erences, variation in prices of bought-in inputs into household production in the form of child care, and domestic productivity differences as determinants of across-household heterogeneity in second earner labour supply. The analysis highlights the importance of the elasticity of substitution between parental and non-parental child care in determining the relationship between utility and income across households. A central result is that taking account of a richer and more realistic specification of household time use widens the set of cases in which individual taxation is welfare-superior to joint taxation.
    Keywords: Optimal taxation, time allocation, household production, child care, labour supply, inequality
    JEL: J22 H21 H24 H31 D13
    Date: 2012–11
  5. By: European Commission
    Abstract: This is the sixth issue of 'Taxation Trends in the European Union', an expanded and improved version of a previous publication, 'Structures of the taxation systems in the European Union'. The objective of the report remains unchanged: to present a complete view of the structure, level and trends of taxation in the Union over a medium- to long-term period.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2012–06
  6. By: Jørgen Dejgård Jensen (Institute of Food and Resource Economics, University of Copenhagen); Sinne Smed (Institute of Food and Resource Economics, University of Copenhagen)
    Abstract: Denmark introduced a new tax on saturated fat in food products with effect from October 2011. The objective of this paper is to make an effect assessment of this tax for some of the product categories most significantly affected by the new tax, namely fats such as butter, butter-blends, margarine and oils. This assessment was done by conducting an econometric analysis on weekly food purchase data from a large household panel dataset (GfK ConsumerTracking Scandinavia), spanning the period from January 2009 until December 2011.The econometric analysis suggest that the introduction of the tax on saturated fat in food products has had some effects on the market for the considered products, in that the level of consumption of fats dropped by 10 – 20%. Furthermore, the analysis points at shifts in demand from high-price supermarkets towards low-price discount stores – a shift that seems to have been utilized by discount chains to raise the prices of butter and margarine by more than the pure tax increase. Due to the relatively short data period with the tax being active, interpretation of these findings from a long-run perspective should be done with considerable care. It is thus recommended to repeat – and broaden – the analysis at a later stage, when data are available for a longer period after the introduction of the fat tax.
    Keywords: fat tax, demand response, price response, retail sales
    Date: 2012–11
  7. By: Marisa Bucheli (Economics Department, Universidad de la Republica, Uruguay); Nora Lustig (Tulane University (Department of Economics; Stone Center for Latin American Studies and CIPR) and Center for Global Development and Inter-American Dialogue.); Maximo Rossi (Economics Department, Universidad de la Republica, Uruguay); Florencia Amábile (Economics Department, Universidad de la Republica, Uruguay)
    Abstract: How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with other five countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms.
    Date: 2012–09
  8. By: Nora Lustig (Tulane University and CGD and IAD); George Gray-Molina (UNDP, New York, USA); Sean Higgins (Tulane University); Miguel Jaramillo (GRADE, Lima, Peru); Wilson Jiménez (Instituto Alternativo, La Paz; Bolivia); Veronica Paz (Instituto Alternativo, La Paz; Bolivia); Claudiney Pereira (Tulane University); Carola Pessino (CGD, Washington, DC and CEMA, Buenos Aires, Argentin); John Scott (CIDE and CONEVAL, Mexico City, Mexico); Ernesto Yañez (Instituto Alternativo, La Paz; Bolivia)
    Abstract: We apply a standard tax and benefit incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average) especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfers –especially transfers that are progressive in absolute terms--as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.
    Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America.
    JEL: D31 D63 H11 H22 H5 I14 I24 I3 O15
    Date: 2012–09
  9. By: Seregi, János; Lelovics, Zsuzsanna; Balogh, László
    Abstract: Differentiation between public and private goods is very complex and difficult. In this article, authors overview these definitions and also the theories about private and public goods to apply this knowledge in the determination of the social welfare functions of forests, the utilization and the tasks of the government. The welfare functions of forests, the tasks of the owner and also the way of utilization of the forest is differing between public and private forests. This overview can help to determine these functions and tasks and also find the best ways of utilization. --
    Keywords: Social welfare,Private and public goods,Government
    Date: 2012
  10. By: Arze del Granado, F. Javier; Martinez-Vazquez, Jorge; McNab, Robert M.
    Abstract: The theoretical and policy literature on decentralization has long asserted since Oates (1972) that decentralized governance increases allocative efficiency in the public sector. But, despite the colossal growth in the literature on decentralization and fiscally decentralized systems in the real world over the past four decades, this hypothesis has gone untested, largely because of the difficulties of deriving measures of allocative efficiency. In this paper we offer an indirect test of the allocative efficiency hypothesis by examining how decentralized governance affects the expression of preferences for public goods. Specifically, we examine the relationship between fiscal decentralization and the functional composition of public expenditures. Using a distance-sensitive representative agent model, we hypothesize that higher levels of fiscal decentralization induce agents to demand increased production of publicly provided private goods. We test this hypothesis using an unbalanced panel data set of 59 developed and developing countries covering a 30-year period. We find that expenditure decentralization positively and significantly influences the share of health and education expenditures in the consolidated government budgets; this finding is robust across multiple estimators. Decentralized governance thus appears to alter the composition of public expenditures towards publicly provided private goods.
    Keywords: Fiscal Decentralization; Functional Composition; Pure Public Goods; Publicly Provided Private Goods; Education; Health
    JEL: H50 H30
    Date: 2012–10–18
  11. By: Robert Schwager
    Abstract: A model is presented where universities competitively supply education to mobile students. Students are subject to a liquidity constraint so that tuition must be paid out of pre-university income. It is shown that student loans provided by home jurisdictions will ensure an ecient quality of higher education if loans do not contain any subsidy. If there is income-related debt relief, however, the equilibrium quality of education is ineciently low. This is because students reduce their expected future income by attending a university oering low quality, and thereby reduce the amount of debt to be repaid.
    Keywords: education, university, mobility, liquidity constraint, debt relief
    JEL: H75 I23
    Date: 2012–07–03

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