nep-pub New Economics Papers
on Public Finance
Issue of 2013‒01‒12
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Government Is Whose Problem? By Jon D. Wisman
  2. Taxation and Incomplete Contracts By Simone Moriconi
  3. Taxes, profits, and employment: a structural axiomatic analysis By Kakarot-Handtke, Egmont
  4. Effective Labor Taxation and the International Location of Headquarters By Strecker, Nora; Egger, Peter; Radulescu, Doina
  5. Why Countries Compete in Ad Valorem Instead of Unit Capital Taxes By Runkel, Marco; Hoffmann, Magnus
  6. Rethinking aid for AIDS A public good approach By Sonntag, Diana

  1. By: Jon D. Wisman
    Abstract: This article addresses the political meaning of President Ronald Reagan's 1981 declaration that "government is the problem." Whereas historically the state had been used by elites to extract as much surplus as possible from producers, with democratization of the franchise, the state became the sole instrument that could limit, or even potentially end, the extraction of workers' surplus. Once control of the state is in principle democratized by the ballot box, the fortunes of the elite depend solely upon controlling ideology. In 1955, Simon Kuznets offered the highly influential conjecture that while rising inequality characterizes early economic development, advanced development promises greater equality. However, rising inequality in most wealthy countries over the past four decades has challenged this hypothesis. What those who embraced Kuznets' conjecture failed to recognize is the dynamics by which the rich, with their far greater command over resources, education, and status, inevitably regain control over ideology and thereby the state. Over the course of history, only the very severe crisis of the 1930s discredited their ideology and led to a sustained period of rising equality. However, by 1980 they had regained ideological ascendancy. This article examines how this struggle over ideology has unfolded in the U.S. since the democratization of the franchise in the late nineteenth century. It concludes with reflections on whether the current crisis holds promise of again de-legitimating the elites' hold on power and ushering in another period of rising equality.
    Keywords: Inequality, ideology, class power, democracy, Kuznets' curve.
    JEL: B00 N32 N42 O15 Z13
    Date: 2013
  2. By: Simone Moriconi (ITEMQ, Università Cattolica di Milano and CREA, University of Luxembourg)
    Abstract: This paper analyzes the impact of taxation on economic effciency when contracts are incomplete. We assume firms operate in a perfect competitive market and can choose between integrated or non-integrated governance to cope with contract incompleteness. Taxation reduces incentives to pursue intra-firm coordination, thus the effciency of firm's production process under non-integration. This is not the case under integration, since production decisions are transferred to the Headquarters, at a fixed integration cost. Taxation may then induce firms to change their organization at the industry equilibrium. We show that a tax that induces firms to choose integration rather than non-integration may serve a corrective function if integration costs and market prices are not too high.
    Keywords: taxation, incomplete contracts and economic effciency
    JEL: H21 L22 H32
    Date: 2012
  3. By: Kakarot-Handtke, Egmont
    Abstract: Standard economics is regarded as the theory of the market system. Profit is the pivotal phenomenon of this system. Contrary to expectations, though, profit is neither well defined not fully understood. The frailty of the theoretical core is passed on to the subfields. This paper provides a consistent definition of profit and applies it to the analysis of the effects of the government sector’s budget on employment and the profitability of the business sector. Since the formal point of departure is different from the standard approach it is quite natural that we arrive at new conclusions in some fundamental issues.
    Keywords: new framework of concepts; structure-centric; axiom set; profit ratio; market clearing prices; consumer optimum; balanced budget; budget deficit; full employment; Haavelmo-Theorem
    JEL: H40 H20 E24 E20
    Date: 2012–01–31
  4. By: Strecker, Nora; Egger, Peter; Radulescu, Doina
    Abstract: Profit taxes are widely acknowledged to influence the location of firms' headquarters. This paper sheds light on the role of aspects of labor taxation for the international location of headquarters. We construct a unique data set of effective labor taxes in 120 countries and use data on the location of 35,206 firms to analyze the impact of labor income tax rates, the progressivity of the income tax schedule, and social security contributions on firms' decisions where to locate their headquarters. The findings suggest that both a higher progressivity of the tax system and higher (employee- and employer-borne) social security contributions negatively influence a country's attractiveness for headquarters location. A one percentage point increase in a country's average labor income tax rate reduces its probability to be chosen as the headquarters location for the average firm by about 1.2 percentage points. --
    JEL: H24 C25 H22
    Date: 2012
  5. By: Runkel, Marco; Hoffmann, Magnus
    Abstract: This paper contributes to resolving the puzzle that in practice most countries use ad valorem (corporate income) taxation, while a large part of the tax competition literature views business taxes as unit (wealth) taxation. We point to the dual role that corporate taxation plays in attracting mobile capital, on the one hand, and in absorbing economic rents, on the other hand. In contrast to the previous literature, we show (i) that detrimental tax competition may be less severe in a system of ad valorem taxes than in a system of unit taxes and (ii) that ad valorem taxation may be the equilibrium outcome in a decentralized world where countries decide themselves on the tax system. Interestingly, the decentralized choice of the ad valorem system may be a prisoner's dilemma since the countries' welfare may be higher if they choose unit taxes. --
    JEL: H21 H25 H77
    Date: 2012
  6. By: Sonntag, Diana
    Abstract: This paper demonstrates why an increased quantity of funding as claimed by big health lenders is not effective to achieve the Millennium Development Goals (MDGs). An alternative funding mechanism linking the disbursement of matching grants with a minimum provision level is suggested. In order to study the impact of conditional subsidies on the efficiency of international health-promoting public goods, non-cooperative multi-stage games are analyzed. In the participation stage, a subsidy which is contingent on some minimum provision level is determined. In later stages countries choose their contributions to a health-promoting public good and receive a subsidy if their supply is no less than a predetermined threshold. The analyses indicate that efficient provision levels can be achieved. --
    JEL: H87 F35 I18
    Date: 2012

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