nep-pub New Economics Papers
on Public Finance
Issue of 2013‒03‒30
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Empathy, Sympathy, and Tax Compliance By Roberta Calvet; James Alm
  2. Expanding the Theory of Tax Compliance from Individual to Group Motivations By James Alm
  3. Automobiles, Tax Mischaracterizations, and the Multibillion Dollar Price Tag By James Alm; Jay A. Soled
  4. Taxing Pollution: Agglomeration and Welfare Consequences By Berliant, Marcus; Peng, Shin-Kun; Wang, Ping
  5. Taxation of agricultural sector in Morocco. An Analysis using a Dynamic Computable General Equilibrium Model By Karim, Mohamed
  6. Social Spending, Taxes and Income Redistribution in Paraguay By Sean Higgins; Nora Lustig; Julio Ramirez; Billy Swanson

  1. By: Roberta Calvet (Department of Business Management and Communication, Lesley University); James Alm (Department of Economics, Tulane University)
    Abstract: This paper examines the effect of "empathy" and "sympathy" on tax compliance. We run a series of laboratory experiments in which we observe the subjects' decisions in a series of one-shot tax compliance games presented at once and with no immediate feedback. Importantly, we employ methods to identify subjects' sympathy, such as the Davis Empathic Concern Scale and questions about frequency of prosocial behaviors; we also use priming in order to promote subjects' empathy. Our results suggest that the presence of sympathy in most cases encourages more tax compliance. Our results also suggest that priming to elicit empathy also has a positive impact on tax compliance. These results support the inclusion of noneconomic factors in the analysis of tax compliance behavior.
    Keywords: Tax evasion; Emotions; Morality; Identity; Behavioral economics; Experimental economics
    JEL: H26 C91
    Date: 2013–02
  2. By: James Alm (Department of Economics, Tulane University)
    Abstract: Taxpayers face well-known and well-identified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax evasion in which financial incentives are shaped by audit, penalty, and tax rates. However, there is growing evidence that these individual incentives, while important, are not always decisive. Individuals do not always behave as the selfish, rational, self-interested individuals portrayed in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation some aspects of social norms, morality, altruism, fairness, or the like, factors that I broadly and no doubt imprecisely lump together as group motivations. I argue that the compliance puzzle can be explained, at least in part, by expanding the standard analysis of individual compliance behavior to incorporate the important ways in which individual decisions are shaped by group motivations. I also provide empirical and experimental evidence to support these arguments, and, I suggest – and predict – some promising lines of future research.
    Keywords: tax evasion, behavioral economics, experimental economics
    JEL: H2 H26 D03 C9
    Date: 2013–02
  3. By: James Alm (Department of Economics, Tulane University); Jay A. Soled (Department of Accounting and Information Systems, Rutgers Business School)
    Abstract: The United States has more automobiles per capita than any other country in the industrial world, and taxpayers use those automobiles for business and nonbusiness purposes. The former classification affords favorable individual income tax treatment, while the latter does not. However, to secure favorable tax treatment, taxpayers often mischaracterize their nonbusiness automobile expenses as business in nature, and they are able to do so with almost complete impunity. Using tabulations of Internal Revenue Service data, we demonstrate that such mischaracterizations result in a significant annual cost in terms of forfeited tax revenue. In addition, using elementary economic theory, we illustrate how taxpayer mischaracterizations result in additional demand for gasoline, which likely raises overall gasoline prices for all consumers. On the basis of our findings, we contend that immediate reforms are needed, and we present several legislative options for Congress to consider. We also argue that the experience of automobile expenses carries larger lessons for other types of tax expenditures, lessons that have relevance to the ongoing discussions about comprehensive tax reform measures.
    Keywords: tax compliance, individual income tax, itemized deductions
    JEL: H0 H3
    Date: 2013–02
  4. By: Berliant, Marcus; Peng, Shin-Kun; Wang, Ping
    Abstract: This paper demonstrates that a pollution tax with a fixed cost component may lead, by itself, to stratification between clean and dirty firms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely stratified configuration with all dirty firms clustering in one city emerges as the only equilibrium outcome when there is a fixed cost component of the pollution tax. Moreover, a stratified Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax that encompasses Pigouvian taxation as a special case. To support such a stratified Pareto optimum, however, an effective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.
    Keywords: Pollution Tax; Agglomeration of Polluting Producers; Endogenous Stratification
    JEL: D62 H23 R13
    Date: 2013–03–25
  5. By: Karim, Mohamed
    Abstract: The agricultural sector has always been the subject of a great attention from officials in Morocco as it is a sector that maintains exchange relations with the other sectors and a production sector of the most important Fast-moving consumer goods (FMCG) in the rural and urban areas. Indeed, agriculture accounts for 15 to 20% of the GDP and 44% of total employment. If one adds food processing, its contribution to the GDP and employment passes respectively to 20 and 50%. However, Moroccan agriculture suffers from low productivity, low yields and high logistics costs, in particular in transport, lack of integration between production and market, insufficient development of post-harvest systems, high costs of production, high risks, low coordination within chains, inadequate post-harvest technologies, lack of quality assurance system, and limited expertise in the processing of the agricultural products. For these reasons, agriculture has benefited from huge tax exemptions extended until the end of 2013.The exemption of the sector is supposed to promote, attract and develop private investments in this sector. Effectively, for the past two years, the agricultural sector was the second sector, after the property, having benefited from tax derogations, which represents about 13.4% of total measures identified in 2011. However, it is admitted that these tax advantages are a source of distortions and inefficient allocation of investments and resources towards this sector. The optimal tax theory provides, for this purpose, lessons that are useful for our empirical study.¶ Today, and besides the question concerning the place of the Moroccan agriculture in the economy which led to the design and implementation of the Green Morocco Plan (GMP), it should be noted that the question of its taxation was not as much in the central concerns as evidenced by the Royal orientations to establish an appropriate system to the agricultural sector in 2014 by taking into consideration the social security of the small-holder farmers. The model used is a dynamic multi-sector general equilibrium model. It registered voter in the line of the models built by Shoven and Whalley (1970) like Decaluwé and Savard (2001). Three agents, namely explicitly there the consumers, the producers and the public authorities, are introduced. However, to take into account the foreign trade and more generally the degree of opening of the Moroccan economy, we add a fourth agent to it: the rest of the world.
    Keywords: Taxation; Agricultural sector; Computable General Equilibrium Model
    JEL: D58 H21 Q18
    Date: 2013–04–01
  6. By: Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University); Julio Ramirez (CADEP (Centro de Analisis y Difusion de la Economia Paraguaya)); Billy Swanson (Department of Economics, University of California Davis)
    Abstract: How much redistribution does Paraguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? Using a standard fiscal incidence analysis, we quantify the reduction in inequality and poverty in Paraguay across income concepts, and contextualize these results by placing Paraguay in comparative perspective with other Latin American countries. Paraguay achieves a relatively small reduction in inequality, even when in-kind education and health benefits are taken into account. Direct taxes are progressive, indirect taxes are regressive, and total taxes are regressive. Social spending is progressive in relative terms, but less so than in any of the other countries analyzed.
    Keywords: inequality, poverty, Paraguay, social spending, taxes
    JEL: H22 D31 I32 I38
    Date: 2013–02

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