nep-pub New Economics Papers
on Public Finance
Issue of 2013‒02‒03
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Raising the Social Security Payroll Tax Cap: How Many Workers Would Pay More? By Nicole Woo; John Schmitt; Janelle Jones
  2. Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation By Paul Eckerstorfer; Ronald Wendner
  3. Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation By Haufler, Andreas; Lülfesmann, Christoph
  4. Cross-border loss offset can fuel tax competition By Haufler, Andreas; Mardan, Mohammed
  5. Green consumption taxes on meat in Sweden By Säll, Sarah; Gren, Ing-Marie

  1. By: Nicole Woo; John Schmitt; Janelle Jones
    Abstract: On January 1, the maximum amount of annual earnings subject to the Social Security tax – a.k.a. the payroll tax cap – increased to $113,700. Every year, this cap is adjusted to keep up with inflation. Many Americans are not aware that income above the cap is not taxed by Social Security. In other words, workers who make $113,700 or less per year pay a higher Social Security payroll tax rate than those who make more. To help alleviate Social Security’s long-term budget shortfall, raising – or even eliminating – the cap has gotten some attention from policy makers. This paper finds that just 1 in 20 workers -- the wealthiest -- would be affected if the cap were eliminated entirely, and only 1 in 75 would be affected if the cap were applied to earnings over $250,000. In addition, the share of workers who would pay more varies greatly according to gender, race, state and age.
    Keywords: CPI, social security, social security cap, inequality, payroll tax cap,
    JEL: H H5 H55 H2 H3
    Date: 2013–01
  2. By: Paul Eckerstorfer (Department of Economics, University of Linz, Austria); Ronald Wendner (Department of Economics, University of Graz, Austria)
    Abstract: We analyze the effects of a generalized class of negative consumption externalities (asymmetric and non-atmospheric) on the structure of effcient commodity tax programs. Households are not only concerned about consumption reference levels - that is, they gain utility from "keeping up with the Joneses" - they also exhibit altruism. Two sets of efficient tax regimes are compared, based, on a welfarist- and a non-welfarist optimality criterion, respectively. Altruism turns out not to be at odds with the consumption externalities. Rather, altruism implicates a bound on efficient utility allocations. A non-welfarist government tolerates less inequality than a welfarist one. In the welfarist (non-welfarist) case, first-best personalized commodity tax rates respond highly sensitively (barely) to whether or not a consumption externality is asymmetric or non-atmospheric. If personalized commodity tax rates are not available (second-best case), the tax rate on a non- positional good is typically different from zero for corrective reasons. For plausible functional forms and parameter values, numerical simulations suggest that second- best tax rates are rather insensitive with respect to both the optimality criterion and the "nature" of the consumption externality.
    Keywords: Consumption externality, keeping up with the Joneses, optimal (commodity) taxation, genuine altruism, non-welfarist government
    JEL: D62 H21 H23
    Date: 2013–01
  3. By: Haufler, Andreas; Lülfesmann, Christoph
    Abstract: The tax competition for mobile capital, in particular the reluctance of small countries to agree on measures of tax coordination, has ongoing political and economic fallouts within Europe. We analyse the effects of introducing a two tier structure of capital taxation, where the asymmetric member states of a union choose a common, federal tax rate in the first stage, and then non-cooperatively set local tax rates in the second stage. We show that this mechanism effectively reduces competition for mobile capital between the members of the union. Moreover, it distributes the gains across the heterogeneous states in a way that yields a strict Pareto improvement over a one tier system of purely local tax choices. Finally, we present simulation results, and show that a dual structure of capital taxation has advantages even when side payments are feasible.
    Keywords: capital tax competition; dual tier taxation; international unions
    JEL: H25 H77 H87
    Date: 2013–01
  4. By: Haufler, Andreas; Mardan, Mohammed
    Abstract: Following recent court rulings, cross-border loss compensation for multinational firms will likely be introduced, at least in Europe. This paper analyzes the effects of introducing a coordinated cross-border tax relief in a setting where multinational firms choose the size of a risky investment and host countries endogenously choose tax rates. We show that coordinated cross-border loss compensation is likely to intensify tax competition when, following current international practice, the parent firm's home country bases the tax rebate for a loss-making subsidiary on its own tax rate. In equilibrium, tax revenue losses will then be even higher than is implied by the direct effect of the reform. In contrast, tax competition will be mitigated when the home country bases its loss relief on the tax rate in the subsidiary's host country.
    Keywords: cross-border loss relief; tax competition; profit shifting
    JEL: H32 F23 H25
    Date: 2013–01
  5. By: Säll, Sarah; Gren, Ing-Marie
    Abstract: This paper designs and evaluates the environmental impacts of a tax on meat consumption in Sweden which reflects environmental damage at the margin. Three meat products are included, cattle, chicken and pork, and three pollutants generating environmental damages; green house gases, nitrogen, and phosphorus. The calculated unit taxes on meat products correspond to 28%, 26%, and 40% of the price per kg of beef, pork, and poultry in 2009. Consumer responses to the taxes are calculated by means of econometric estimates of a linear demand system of the meat products. The results indicate relatively high own price and income elasticities of the meat products and complementarity in consumption. A simultaneous introduction of taxes on all three meat products can decrease emission of GHG, nitrogen, phosphorus and ammonia by at least 27%. If only one meat product can be taxed, a tax on pork meat gives the largest reductions in emission of all pollutants, which to a large extent is explained by the high complementarity in consumption.
    Date: 2012–12–06

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