nep-pub New Economics Papers
on Public Finance
Issue of 2013‒01‒07
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Participation Taxes and Efficient Transfer Phase-Out By Normann Lorenz; Dominik Sachs
  2. Optimal Factor Tax Incidence in Two-sector Human Capital-based Models By Been-Lon Chen; Chia-Hui Lu
  3. The long run effect of taxes on the distribution of top income shares: an empirical investigation By Christoph Gorgas; Christoph A. Schaltegger
  4. The economics of taxing net wealth: A survey of the issues By Schnellenbach, Jan
  5. Non-linear Effects of Taxation on Growth By Jaimovich, Nir; Rebelo, Sérgio
  6. Failure of Ad Valorem and Specific Tax Equivalence under Uncertainty By Laszlo Goerke; Frederik Herzberg; Thorsten Upmann
  7. Indirect taxation of monopolists: A tax on price By Vetter, Henrik
  8. Optimal overall emissions taxation in durable goods oligopoly By Sagasta Elorza, Amagoia; Usategui Díaz de Otalora, José María
  9. (Tax evasion) power to the people: does "early democratization" increase the size of the informal sector? By Adam, Antonis; Kammas, Pantelis
  10. Solving the Yitzhaki Paradox By Gwenola Trotin
  11. Beliefs and Public Good Provision with Anonymous Contributors By Wilfredo L. Maldonado; José A. Rodrigues-Neto
  12. “Beyond pure public and pure private management models: Mixed firms in the European Airport Industry” By Daniel Albalate; Germà Bel; Xavier Fageda

  1. By: Normann Lorenz (Volkswirtschaftslehre, Universität Trier, Germany); Dominik Sachs (Department of Economics, University of Konstanz, Germany)
    Abstract: We analyze the optimal design of income transfer programs with a special focus on participation taxes and the marginal tax rates in the phase-out region. The analytical framework incorporates labor supply responses along the intensive and extensive margin, where the latter is due to a minimum hours constraint. All results are expressed in reduced form, i.e. in terms of intensive and extensive labor supply elasticities. We derive a formula for the optimal participation taxes and provide a condition under which negative participation taxes are never part of the optimal tax schedule. Concerning the marginal tax rates in the phase-out region, we develop a test for a tax-transfer system to be beyond the top of the Laffer curve and thus to be (second-best) Pareto inefficient. In such a case there would be room for tax cuts (or increases in transfers) which are self-financing and therefore constitute a Pareto improvement. Applying this test to Germany, our analysis suggests that the structure of marginal tax rates in the transfer phase-out region is (second-best) Pareto inefficient.
    Keywords: Optimal taxation, participation taxes, extensive margin, Laffer curve, multidimensional screening
    JEL: H21 H23
    Date: 2012–12–17
  2. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Chia-Hui Lu (Department of Economics, National Taipei University)
    Abstract: This paper studies the optimal factor tax incidence in a standard two-sector, human capital-based endogenous growth model elucidated by Lucas (1988). Capital income taxes generate dynamic inefficiency for capital accumulation and labor income taxes create dynamic inefficiency for human capital accumulation. A factor tax incidence is a tradeoff between these two inefficiencies. A switch from capital income taxes to labor income taxes reduces the long-run welfare coming from lower leisure and increases the long-run welfare originated from higher economic growth and higher consumption. Because the representative agent’s learning time and human capital are inseparable and thus affect learning activities at the same degree, we find that based on the current US income tax code, it is optimal to first tax capital income, and to resort to taxing labor income only when tax revenue is insufficient to cover government expenditure.
    Keywords: two-sector model, human capital, optimal factor tax incidence
    JEL: E62 H22 O41
    Date: 2012–12
  3. By: Christoph Gorgas; Christoph A. Schaltegger
    Abstract: We provide empirical evidence on the impact of personal income taxes and tax competition on income concentration in Switzerland. The fact that Swiss cantons have considerable taxing power enables us to study the effect of differences in the tax burden as well as in the pressure of tax competition on the distribution of top income shares within Switzerland. Using panel regressions covering all 26 Swiss cantons over the years 1917 to 2007 we find substantial evidence that tax competition is a major driving force behind the cantonal tax setting behaviour shaping cantonal income concentration for the very top incomes significantly.
    Date: 2012–12
  4. By: Schnellenbach, Jan
    Abstract: This paper surveys possible motivations for having a net wealth tax. After giving a short overview over the state of wealth taxation in OECD countries, we discuss both popular arguments for such a tax, as well as economic arguments. It is argued that classical normative principles of taxation known from public economics cannot give a sound justification for a net wealth tax. The efficiency-related effects are also discussed and shown to be theoretically ambiguous, while empirical evidence hints at a negative effect on GDP growth. Finally, it is argued that despite of widespread and persistent lobbying for a revitalization of the net wealth tax, this is unlikely to happen due to political economy constraints. --
    Keywords: net wealth tax,wealth,inequality,redistribution
    JEL: H24 D31 H23 H21 H22
    Date: 2012
  5. By: Jaimovich, Nir; Rebelo, Sérgio
    Abstract: We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.
    Keywords: growth; taxes
    JEL: H2 O4
    Date: 2012–12
  6. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the EU, University of Trier); Frederik Herzberg; Thorsten Upmann
    Abstract: Applying a framework of perfect competition under uncertainty, we contribute to the discussion of whether or not ad valorem taxes and specific taxes are equivalent. While this equivalence holds without price uncertainty, we show that ad valorem taxes and specific taxes are “almost never” equivalent in the presence of uncertainty if we demand equivalence to hold pathwise. Since we obtain this result under perfect competition, our analysis also provides a further rationale for why the equivalence must fail under imperfect competition.
    Keywords: ad valorem taxes and specific taxes, revenue neutrality, price uncertainty, concept of pathwise neutrality
    JEL: H20 H21 H61
    Date: 2012–10
  7. By: Vetter, Henrik
    Abstract: A digressive tax like a variable rate sales tax or a tax on price gives firms an incentive for expanding output. Thus, unlike unit and ad valorem taxes which amplify the harm from monopoly, a digressive tax lessens the harm. We analyse a tax on price with respect to efficiency and practical policy appeal. Using a tax on price in combination with ad valorem taxation it is possible to achieve the Ramsey solution. That is, the combination of the two taxes secures tax revenue in the least distortive way. We also show how tax reforms based only on observation of price and quantity can make use of a tax on price in order to improve welfare. That is, it is practical to use a tax on price. --
    Keywords: tax on price,ad valorem tax,tax incidence
    JEL: H21 L31
    Date: 2012
  8. By: Sagasta Elorza, Amagoia; Usategui Díaz de Otalora, José María
    Abstract: We analyze optimal second-best emission taxes in a durable good industry under imperfect competition. The analysis is performed for three different types of emissions and for situations where the good is rented, sold or simultaneously sold and rented. We show, for durable goods that may cause pollution in a period (or in periods) different from the production period, that the expected overall emission tax and the expected total marginal environmental damage per unit produced in each period are the relevant variables to consider in the analysis of overinternalization and in the comparison of optimal emission taxes for renting, selling and renting-selling firms. Our results allow to extend some previous results in the literature to these durable goods and provide an adequate perspective on some other results (in particular, we point out the limitations of focusing only, for those durable goods, on the level and effects of the optimal emission tax in the production period).
    Keywords: optimal emission taxes, overinternalization,, durable good, emission types, imperfect competition
    JEL: Q58 Q53 H23 L13
    Date: 2012
  9. By: Adam, Antonis; Kammas, Pantelis
    Abstract: This paper examines the political economy forces that lead to the creation of the informal sector in an economy. Our analysis treats unofficial economy as an endogenous outcome that may be produced by the conflict for redistribution between different groups of agents. The crucial factor in our analysis is whether the extension of voting franchise takes place before the consolidation of a strong state characterized by solid institutions (this is what we call "early democratization"). When this happens, distributional conflict affects the quality of institutions since the political elites have an incentive to decide weaker institutions which allows them to mitigate the tax burden fallen on their income. In the empirical section, we examine whether countries that experienced “early democratization” are characterized by relatively larger informal sectors. Our findings provide strong empirical evidence in favor of the implication driven by our theoretical model.
    Keywords: Redistribution; Inequality; Tax Evasion
    JEL: H10 H23 H26
    Date: 2012–12–20
  10. By: Gwenola Trotin (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: This paper examines the determinants of tax evasion under prospect theory. For prospect theory, reference dependence is a fundamental element (the utility function depends on gains and losses relative to a reference point and not on final wealths as in expected utility theory). In order to identify the determinants of the income tax evasion decision, a general reference income is used. We show that results obtained under expected utility theory are not robust. In particular, tax evasion is increasing in the tax rate as soon as a suitable relative risk aversion measure is larger with auditing, than without. With this simple and testable condition, prospect theory provides a general framework consistent with empirical evidence for the tax evasion behaviour problem.
    Keywords: Tax evasion; Prospect theory; Reference dependence; Decision weights.
    JEL: D81 H26 K42
    Date: 2012–09–03
  11. By: Wilfredo L. Maldonado; José A. Rodrigues-Neto
    Abstract: We analyze a static game of public good contributions where finitely many anonymous players have heterogeneous preferences about the public good and heterogeneous beliefs about the distribution of preferences. In the unique symmetric equilibrium, the only individuals who make positive contributions are those who most value the public good and who are also the most pessimistic; that is, according to their beliefs, the proportion of players who value the most the public good is smaller than it would be according to any other possible belief. We predict whether the aggregate contribution is larger or smaller than it would be in an analogous game with complete information (and heterogeneous preferences), by comparing the beliefs of contributors with the true distribution of preferences. A tradeoff between preferences and beliefs arises if there is no individual who simultaneously has the highest preference type and the most pessimistic belief. In this case, there is a symmetric equilibrium, and multiple symmetric equilibria occur only if there are more than two preference types.
    JEL: C72 H41
    Date: 2012–12
  12. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Germà Bel (Faculty of Economics, University of Barcelona); Xavier Fageda (Faculty of Economics, University of Barcelona)
    Abstract: increasing trend in airports. The literature has not paid enough attention to the mixed management models in this industry, although many European airports take the form of mixed firms or Institutional PPP, where ownership is shared between public and private sectors. We examine the determinants of the degree of private participation in the European airport sector. Drawing on a sample of the 100 largest European airports we estimate a multivariate equation in order to determine the role of airport characteristics, fiscal variables and political factors on the extent of private involvement. Our results confirm the alignment between public and private interests in PPPs. Fiscal constraints and market attractiveness promote private participation. Integrated governance models and the share of network carriers prevent the presence of private ownership, while the degree of private participation appears to be pragmatic rather than ideological.
    Keywords: Partial Privatization, Mixed Firms, Airports. JEL classification: H4; H54; H7; L88; L9
    Date: 2012–12

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