nep-pub New Economics Papers
on Public Finance
Issue of 2012‒12‒22
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Evasion, Inequality and Progressive Taxes: A Political Economy Perspective By Radhika Lahiri; Mark Phoon
  2. A Theory of Optimal Inheritance Taxation By Piketty, Thomas; Saez, Emmanuel
  3. Reciprocal Relationships in Tax Compliance Decisions By Mathieu Désolé; Stefano Farolfi; Patrick Rio
  4. A Poll Tax by any Other Name: The Political Economy of Disenfranchisement By Daniel B. Jones; Werner Troesken; Randall Walsh
  5. Should tax policy favor high- or low-productivity firms? By Langenmayr, Dominika; Haufler, Andreas; Bauer, Christian J.
  6. Tax incentives and direct support for R&D: What do firms use and why? By Isabel Busom Piquer; Beatriz Corchuelo; Ester Martinez Ros
  7. Modelling the Tax Burden on Labour Income in Brazil, China, India, Indonesia and South Africa By Luca Gandullia; Nicola Iacobone; Alastair Thomas
  8. Is the Burden Too Small? – Effective Tax Rates in Ghana By David Nguyen-Thanh; Christoph Strupat
  9. Improving the Tax System in Indonesia By Jens Arnold

  1. By: Radhika Lahiri (QUT); Mark Phoon
    Abstract: This paper revisits the original Allingham and Sandmo (1972) framework with a view towards addressing the issue of tax compliance, and examining the political economy implications of tax evasion for progressivity in the tax structure. In so doing, we ‘start from scratch’ by constructing a simple extension of the basic Allingham and Sandmo construct that allows agents to initially decide whether to evade taxes or not. We then use a step-by-step model building procedure by taking both the basic model and its ‘evade-or-not’ counterpart towards a dynamic macroeconomic framework. We find that the ‘evade or not’ assumption has strikingly different and more realistic implications for the extent of evasion, and demonstrate that it is a more appropriate modeling strategy in the context of macroeconomic models. Furthermore, our numerical analysis suggests that the political outcome for the tax rate for a given level of inequality is conditional on whether there is a large or small or large extent of evasion in the economy, although changes in inequality do not matter for this outcome.
    Keywords: Tax Evasion; Inequality; Political Economy
    JEL: H26 D63 E60
    Date: 2012–12–10
  2. By: Piketty, Thomas; Saez, Emmanuel
    Abstract: This paper derives optimal inheritance tax formulas that (a) capture the key equity-efficiency trade-off, (b) are expressed in terms of estimable sucient statistics, (c) are robust to the underlying structure of preferences. We consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities. We limit ourselves to simple but realistic linear or two-bracket tax structures to obtain tractable formulas. We show that long-run optimal inheritance tax rates can always be expressed in terms of distributional parameters, aggregate behavioral elasticities and social preferences for redistribution. Importantly, those results carry over with tractable modifications to (a)the case with social discounting (instead of steady-state welfare maximization), (b) the case with partly accidental bequests, (c) the standard Barro-Becker dynastic model. In all cases, the optimal inheritance tax rate increases with the concentration of bequest received and decreases with the elasticity of aggregate bequests to the net-of-tax rate. The optimal tax rate is positive and quantitatively large if concentration is high, the elasticity is low and society cares mostly about those receiving little inheritance. In contrast, the optimal tax rate is negative when society cares mostly about inheritors. We propose a calibration using micro-data for France and the United States. We find that for realistic parameters the optimal inheritance tax rate might be as large as 50%-60% - or even higher for top bequests, in line with historical experience.
    Keywords: Inheritance; Optimal taxation; Wealth
    JEL: H10
    Date: 2012–12
  3. By: Mathieu Désolé; Stefano Farolfi; Patrick Rio
    Abstract: This paper uses a CGT TU game modified into a coordination experiment to explore the causal effect of context on players’ behaviour. An analytical framework focusing on four attributes representative of the game’s context is proposed and an experimental protocol based on this framework allows testing hypotheses regarding the influence of context on players’ choices. Results show that attributes such as Repetition and Communication seem to have a higher influence than Illustration on players’ behaviour. The peculiar nature of the experimental results in the control group, showing the emergence of a focal point other than the outcome prescribed by the theory, allows discussing the expected “noise” observed in the treatments from a new perspective.
    Date: 2012–12
  4. By: Daniel B. Jones; Werner Troesken; Randall Walsh
    Abstract: In this paper, we examine the political economy of voting rights in the American South. We begin by measuring the impact of both formal laws and informal modes of voter suppression on African-American political participation. In contrast to prior research, we find evidence that both formal and informal modes of voter suppression were important and mutually reinforcing. Part of our analysis includes explicitly identifying the magnitude and causal effects of lynching on black voter participation. We then turn to analyzing to the relatively unexplored question of how disenfranchisement–and the accompanying shifts in political power–affected policy outcomes, congressional voting, and partisan control of state and federal legislatures.
    JEL: H0 J15 N11
    Date: 2012–12
  5. By: Langenmayr, Dominika; Haufler, Andreas; Bauer, Christian J.
    Abstract: Heterogeneous firm productivity seems to provide an argument for governments to pursue 'pick-the-winner' strategies by subsidizing highly productive firms more, or taxing them less, than their less productive counterparts. We appraise this argument by studying the optimal choice of effective tax rates in an oligopolistic industry with heterogeneous firms. We show that the optimal structure of tax differentiation depends critically on the feasible level of corporate profit taxes, which in turn depends on the degree of international tax competition. When tax competition is moderate and profit taxes are high, favoring high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low, however, the optimal tax policy is reversed and low-productivity firms are tax-favored.
    Keywords: business taxation; firm heterogeneity; tax competition
    JEL: H25 H87 F15
    Date: 2012–12
  6. By: Isabel Busom Piquer (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Beatriz Corchuelo (Deparment of Economy, University of Extremadura); Ester Martinez Ros (Departamento de Economía de la Empresa, Universidad Carlos III de Madrid and UNU-MERIT)
    Abstract: This paper studies whether firms’ use of R&D subsidies and R&D tax incentives is correlated to two sources of underinvestment in R&D, financing constraints and appropriability. We find that financially constrained SMEs are less likely to use R&D tax credits and more likely to obtain subsidies. SMEs using legal methods to protect their intellectual property are more likely to use tax incentives. Results are ambiguous for large firms. For both having previous experience in R&D increases the likelihood of using tax incentives, while it reduces the likelihood of using exclusively subsidies, suggesting that the latter induce entry into R&D. Results imply that direct funding and tax credits do not have the same ability to address each source of R&D underinvestment, and that on average subsidies may be better suited than tax credits at least for SMEs. From a policy perspective these tools may be complements rather than substitutes.
    Keywords: R&D, tax incentives, subsidies, policy mix
    JEL: H25 L60 O31
    Date: 2012–12
  7. By: Luca Gandullia; Nicola Iacobone; Alastair Thomas
    Abstract: This paper examines the taxation of labour income in five key emerging economies: Brazil, China, India, Indonesia and South Africa (the “BIICS” countries). The paper highlights the key features of the taxation of labour income in these countries, and then uses this information to model the tax burdens on labour income in each country following the OECD's Taxing Wages methodology. Average and marginal tax wedges in Brazil and China (Shanghai) are found to be similar in size in 2010 to those of many OECD countries. In contrast, India, Indonesia and South Africa (as well as rural China) impose very low average and marginal tax wedges compared to the vast majority of OECD countries. These relatively low tax wedge results are not altogether surprising given that these countries also currently have lower tax-to-GDP ratios than the OECD average. However, the results suggest that, in the long-term, reforms will be necessary in most of the BIICS countries if the labour income base is to significantly contribute to funding the substantial increases in public expenditure, particularly on infrastructure and social insurance, that will inevitably come as these countries continue to grow.<P>Modéliser la charge fiscale pesant sur les revenus du travail en Afrique du Sud, au Brésil, en Chine, en Inde et en Indonésie<BR>Ce document propose un examen de la taxation des revenus du travail dans cinq grandes économies émergentes, à savoir l’Afrique du Sud, le Brésil, la Chine, l’Inde et l’Indonésie. Il met l’accent sur les principales caractéristiques des régimes d’imposition en vigueur dans ces pays, les informations correspondantes étant ensuite utilisées pour modéliser la charge fiscale pesant sur les revenus du travail dans chaque pays à l’aide de la même méthodologie que celle suivie par l’OCDE pour sa publication intitulée Les impôts sur les salaires. Il apparaît qu’au Brésil et en Chine (Shanghai), les coins fiscaux moyens et marginaux sont du même ordre que ceux d’un grand nombre de pays de l’OCDE en 2010. En Afrique du Sud, en Inde et en Indonésie (ainsi qu’en Chine rurale) en revanche, les coins fiscaux moyens et marginaux sont très faibles en comparaison de ceux de la grande majorité des pays de l’OCDE. Le niveau relativement bas de ces chiffres n’est pas vraiment surprenant étant donné que ces pays affichent actuellement des rapports impôt/PIB inférieurs à la moyenne de l’OCDE. Il donne cependant à penser que, sur le long terme, des réformes seront nécessaires dans la plupart de ces économies si la taxation des revenus du travail doit apporter une contribution notable au financement des hausses considérables des dépenses publiques, en particulier dans les domaines des infrastructures et de la sécurité sociale, qu’elles devront inévitablement assumer à mesure qu’elles continueront à croître.
    Keywords: personal income tax, tax wedge, social security contributions, labour income, coin fiscal, cotisations de sécurité sociale, revenus du travail, impôt sur le revenu des personnes physiques
    JEL: H24 H55
    Date: 2012–12–12
  8. By: David Nguyen-Thanh; Christoph Strupat
    Abstract: This paper examines capital income taxation in Ghana. We calculate effective marginal tax rates (EMTR) and effective average tax rates (EATR) using an extended Devereux-Griffith methodology to accommodate for tax incentives - an exercise that has not been done so far for Ghana. We find that the wide range of tax incentives leads to a high variation of effective average tax rates in Ghana. Tax holidays and preferential income tax rates lower the effective tax burden to a significant extent and encourage individual tax avoidance strategies. Furthermore our results confirm previous findings that tax holidays, effectively reducing EATR, favor high-profit short-lived investment projects raising doubts about their rationale.
    Keywords: Effective tax rates; tax holidays; Ghana
    JEL: H23 H25 H10
    Date: 2012–12
  9. By: Jens Arnold
    Abstract: Indonesia has come a long way in improving its tax system over the last decade, both in terms of revenues raised and administrative efficiency. Nonetheless, the tax take is still low, given the need for more spending on infrastructure and social protection. With the exception of the natural resources sector, increasing tax revenues would be best achieved through broadening tax bases and improving tax administration, rather than changes in the tax schedule that seems broadly in line with international practice. Possible measures to broaden the tax base include bringing more of the self-employed into the tax system, subjecting employer-provided fringe benefits and allowances to personal income taxation and reducing the exemptions from value-added taxes. Similarly, broad-based investment credits would be a less distortive way to enhance investment incentives than selective tax holidays. Introducing a targeted, simplified tax regime for small and medium-sized enterprises, as currently planned by the government, could foster their integration into the tax system in the longer run, even if its short-run revenue potential is limited. Upgrading tax administration has made substantial progress in Indonesia since 2002, although there is still scope to improve the training of tax officers and the administration’s audit and litigation capacities, while strengthening internal control systems and enhancing the transparency of administrative decisions. The audit system could be further improved by allocating more tax audits on the basis of compliance risks. In the natural resources sector, particularly in mining, there is a case for increasing the government’s share of resource rents through higher tax rates imposed on these rents, as opposed to taxing revenues. This would imply a willingness of the government to bear a larger share of the exploration and development risk than heretofore, which Indonesia, with its improved access to international financial markets and a diversified resource portfolio, is now well placed to do. In the mining sector, a powerful rent tax regime with a large government take would serve the country better than export taxes and ownership restrictions that have been decided recently. This Working Paper relates to the 2012 OECD Economic Review of Indonesia (<P>Améliorer le système fiscal en Indonésie<BR>L’Indonésie a beaucoup amélioré son système fiscal au cours de la dernière décennie, tant en ce qui concerne le montant des recettes collectées que l’efficience administrative. Néanmoins, les recettes fiscales restent faibles au regard de la nécessité d’accroître les dépenses consacrées aux infrastructures et à la protection sociale. À l’exception du secteur des ressources naturelles, l’augmentation des recettes fiscales doit passer avant tout par l’élargissement de l’assiette et l’amélioration de l’administration fiscale, plutôt que par une révision du barème d’imposition qui semble globalement conforme à la pratique internationale. Parmi les mesures possibles pour élargir l’assiette figurent l’intégration des travailleurs non salariés dans le système fiscal, l’assujettissement à l’impôt sur le revenu des personnes physiques des biens en nature et des indemnités versés par l’employeur, et la réduction des exemptions à la TVA. Dans le même ordre d’idées, l’introduction de crédits d’impôt généreux en faveur de l’investissement serait un moyen de stimuler l’investissement qui induirait moins de distorsions que des exonérations fiscales sélectives. La mise en place d’un régime simplifié et ciblé pour les petites et moyennes entreprises, actuellement envisagé par les pouvoirs publics, pourrait favoriser leur intégration dans le système fiscal à plus long terme, même si l’effet à court terme sur les recettes est limité. La modernisation de l’administration fiscale a beaucoup progressé en Indonésie depuis 2002, bien qu’il soit encore possible d’améliorer la formation des agents des impôts et de renforcer les capacités de l’administration à mener des vérifications et à agir en justice, tout en consolidant les systèmes de contrôle interne et en accroissant la transparence des décisions administratives. Le système de vérification pourrait être perfectionné en fondant les décisions de contrôle fiscal sur les risques de non paiement. Dans le secteur des ressources naturelles, et notamment les industries extractives, il y a lieu d’accroître la part des rentes de ressources revenant à l’État en relevant les taux d’imposition de ces rentes, au lieu de taxer les recettes. Une telle mesure impliquerait la volonté des pouvoirs publics de prendre à leur charge une partie des risques d’exploration et de mise en valeur plus importante qu’auparavant, ce qui est tout à fait à la portée de l’Indonésie, qui bénéficie aujourd’hui d’un meilleur accès aux marchés internationaux de capitaux et d’un portefeuille de ressources diversifié. Dans le secteur minier, un régime performant d’imposition des rentes, qui permette à l’État de percevoir une fraction élevée des recettes, servirait davantage les intérêts du pays que les taxes à l’exportation et les restrictions à la propriété qui ont été décidées récemment. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l’Indonésie 2012 (
    Keywords: industrial policy, tax administration, Indonesia, export taxes, tax exemptions, tax systems, natural resource taxation, politique industrielle, ressources naturelles, administration fiscale, Indonésie, exonération fiscale, système fiscal, taxes à l’exportation
    JEL: F13 H21 H23 H24 H25 H26 H27 L78 O17 O23 O24 O25
    Date: 2012–10–30

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