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on Public Finance |
| By: | Clément Carbonnier (THEMA, Universite de Cergy-Pontoise) |
| Abstract: | The present article generalyses economic litterature on consumption tax incidence to general forms of consumption taxes. Previous studies were limited to the cases of per unit and ad valorem taxes. Three main contributions are provided. From a methodological point of view, the elasticity of the tax function is introduced as a new parameter to take the shape of general consumption tax schedules into account in different models of imperfect competition in a tractable manner. From a theoretical point of view, existing results on the difference of incidence of ad valorem and per unit consumption taxes are generalized to non-linear consumption taxes: the larger the elasticity of the tax function the weaker the share of the consumption tax beared by consumers. From anapplied public economic point of view, it is shown how the regulator may put downwards prices on very uncompetitive markets by increasing the elasticity of the consumption tax on a targeted window of producer prices. |
| Keywords: | Consumption taxes; Imperfect Competition; Tax Incidence; Efficiency. |
| JEL: | H21 H22 H24 H32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2013-19&r=pub |
| By: | Kreiner, Claus Thustrup; Munch, Jakob Roland; Whitta-Jacobson, Hans-Jørgen |
| Abstract: | Inspired by Hayek (1945), we study the distortionary effects of taxation on labor mobility and the long run allocation of labor across different profitable opportunities. These effects are not well detected by the methods applied in the large public finance literature estimating the elasticity of taxable income and quantifying the welfare loss from taxation. Our analysis builds on a standard search theoretic framework where workers are continually seeking better paid jobs, but are also fired from time to time because of economic development and productivity shocks. We incorporate non-linear taxation into this setting and estimate the structural parameters of the model using employer-employee register based data for the full Danish population of workers and workplaces for the years 2004-2006. Our results indicate that along the intensive margin the Danish taxation generates an overall efficiency loss corresponding to a 12 percent reduction in GDP. It is possible to reap 4/5 of this potential efficiency gain by going from a high-tax Scandinavian system to a level of taxation in line with low-tax OECD countries such as the United States. The tax-responsiveness of labor mobility and allocation corresponds to an elasticity of taxable income with respect to the net-of-tax rate in the range 0.15-0.3. |
| Keywords: | elasticity of taxable income; labor mobility; tax distortions |
| JEL: | H21 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9275&r=pub |
| By: | Gaetano Lisi (Creativity and Motivations (CreaM) Economic Research Centre) |
| Abstract: | Following the behavioural branch of tax compliance literature, this paper tries to incorporate tax morale into the optimal taxation theory. We show that tax morale affects the optimal mix of policy tools of deterrence to clamp down tax evasion. The optimal tax policy in fact differs according to the type of tax payer taken into account. Precisely, in the case of honest taxpayers the optimal strategy from a social welfare standpoint is to substitute a higher taxation/penalty with tighter monitoring; whereas, in the case of tax evaders, the policy maker should enforce both a higher penalty and an increased monitoring |
| Keywords: | tax evasion, tax compliance, tax morale, taxation, monitoring JEL |
| JEL: | H26 J64 K42 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0313&r=pub |
| By: | Besley, Timothy J.; Persson, Torsten |
| Abstract: | The central question in taxation and development is: "how does a government go from raising around 10% of GDP in taxes to raising around 40%"? This paper looks at the economic and political forces that shape the way that fiscal capacity is created and sustained. As well as reviewing the literature and evidence, it builds an overarching framework to help structure thinking on the topic. |
| Keywords: | State Capacity; Taxation |
| JEL: | H11 H20 O17 O43 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9307&r=pub |
| By: | Huu Thanh Tam Nguyen (Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne); Manh Hung Nguyen (Toulouse School of Economics (LERNA-INRA), Hanoi WRU); Aditya Goenka (Department of Economics, National University of Singapore) |
| Abstract: | This paper investigates the effect of foreign direct investment (FDI) on the welfare of the host country through the process of corporate tax rate determination. Based on a theoretical model that allows for the entry of heterogenous multinational firms, we show that the impact of FDI on government revenue will depend on the competition effect and the technological spillovers. We argue that the competition effect reduces production of domestic firms and thereby lowers the level of corporate tax revenue while the technological spillovers can have positive or negative welfare effects depending on the absorptive capacity of local firms. The degree to which FDI contribute to government revenue in the host country depends also on the demand creation effect and technological transfer cost. |
| Keywords: | FDI, corporate tax revenue |
| JEL: | F15 F23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eve:wpaper:13-03&r=pub |
| By: | Uwe Dulleck (QUT); Jonas Fooken (QUT); Cameron Newton (QUT); Andrea Ristl; Markus Schaffner (QUT); Benno Torgler (QUT) |
| Abstract: | Although paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context. |
| Keywords: | tax compliance, psychic costs, stress, tax morale, cooperation, heart rate variability, biomarkers, experiment |
| JEL: | H26 H41 K42 D31 D63 C91 |
| Date: | 2012–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:wp001&r=pub |
| By: | Ernst, Christof; Richter, Katharina; Riedel, Nadine |
| Abstract: | This paper examines the impact of tax incentives on corporate research and development (R&D) activity. Traditionally, R&D tax incentives have been provided in the form of special tax allowances and tax credits. In recent years, several countries moreover reduced their income tax rates on R&D output (patent boxes). Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We provide evidence that, beyond this quantity effect, corporate taxation also distorts the quality of R&D projects, i.e. their innovativeness and revenue potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income is instrumental in attracting innovative projects with a high earnings potential and innovation level. The effect is statistically signficant and economically relevant and prevails in a number of sensitivity checks. R&D tax credits and tax allowances are in turn not found to exert a statistically significant impact on project quality. -- |
| Keywords: | corporate taxation,patent quality,micro data |
| JEL: | H3 H7 J5 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13010&r=pub |
| By: | Kleven, Henrik; Landais, Camille; Saez, Emmanuel; Schultz, Esben |
| Abstract: | This paper analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain three main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid ineligible foreigners, which translates into a very large elasticity of migration with respect to the net-of-tax rate on foreigners, between 1.5 and 2. Hence, preferential tax schemes for highly paid foreign workers could create severe tax competition between countries. Second, we find compelling evidence of a negative effect of scheme-induced increases in the net-of-tax rate on pre-tax earnings at the individual level. This finding cannot be explained by the standard labor supply model where pay equals marginal productivity, but it can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity. Third, we find no evidence of positive or negative spillovers of the scheme-induced influx of high-skilled foreigners on the earnings of highly paid natives. |
| Keywords: | International Migration; Taxation; Wage Bargaining |
| JEL: | H22 H31 J61 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9410&r=pub |
| By: | Balázs Égert |
| Abstract: | Taxes and cash transfers reduce income inequality more in France than elsewhere in the OECD, because of the large size of the flows involved. But the system is complex overall. Its effectiveness could be enhanced in many ways, for example so as to achieve the same amount of redistribution at lower cost. The French tax code should be simplified and changed less frequently. High statutory rates are coupled with a wide range of effective tax rates resulting from a multitude of tax expenditures. There is a need for base broadening combined with lower rates throughout the system, including VAT. The tax wedge on labour is high, except at the bottom of the wage distribution, which can reduce worker participation and job offers. Greater neutrality both across different capital asset classes but also within specific taxes, and shifting taxes from labour and capital inputs to environmental and property taxes would improve economic outcomes. Likewise, the system of social and family benefits should be simplified to enhance transparency and consistency. Eliminating schemes that let people leave the labour market early, abolishing the pension privileges of specific occupational groups and internalising the costs of survivors’ pension benefits would increase fairness while at the same time generating savings. Better labour-market performance would result from increasing job-search incentives and shortening the parental leave allowance. This Working Paper relates to the 2013 OECD Economic Survey of France (www.oecd.org/eco/surveys/France). |
| Keywords: | taxation, redistribution, income inequality, cash transfers |
| JEL: | D30 H20 H30 H50 H55 H70 J20 J30 |
| Date: | 2013–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1038-en&r=pub |
| By: | Olivier Bargain (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, and IZA); Mathias Dolls (IZA and University of Cologne); Dirk Neumann (IZA and the University of Cologne); Andreas Peichl (IZA, U. of Cologne, CESifo and ISER); Sebastian Siegloch (IZA and the University of Cologne) |
| Abstract: | We analyze to which extent social inequality aversion differs across nations when control ling for actual country differences in labor supply responses. Towards this aim, we estimate labor supply elasticities at both extensive and intensive margins for 17 EU countries and the US. Using the same data, inequality aversion is measured as the degree of redistribution implicit in current tax-benefit systems, when these systems are deemed optimal. We find relatively small differences in labor supply elasticities across countries. However, this changes the cross-country ranking in inequality aversion compared to scenarios following the standard approach of using uniform elasticities. Differences in redistributive views are significant between three groups of nations. Labor supply responses are systematically larger at the extensive margin and often larger for the lowest earnings groups, exacerbating the implicit Rawlsian views for countries with traditional social assistance programs. Given the possibility that labor supply responsiveness was underestimated at the time these programs were implemented, we show that such wrong perceptions would lead to less pronounced and much more similar levels of inequality aversion. |
| Keywords: | Social preferences, redistribution, optimal income taxation, labor supply. |
| JEL: | H11 H21 D63 C63 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1323&r=pub |
| By: | Isabelle Joumard; Juliana Londoño Vélez |
| Abstract: | Income inequality in Colombia has declined since the early 2000s but remains very high by international standards. While most of the inequality originates from the labour market, wealth – and thus capital income – is also highly concentrated and the tax and transfer system has little redistributive impact. The tax-to-GDP ratio remains low. Consumption taxes, which tend to be regressive, account for the bulk. The progressivity of income taxes had been undermined by generous tax reliefs, which benefit the well-off most and increase tax avoidance opportunities. The tax system should be reformed to enhance progressivity and raise more revenue which could be used to expand social policies. Cash transfers to households are small and dominated by non-redistributive schemes such as contributory pensions. Education coverage has increased steadily but quality and equity in access at the tertiary level remain important issues. Though significant progress has been made towards universal health coverage, the financing and organisation of the health care system could be improved to raise the quality of care and reduce adverse incentives to remain in the informal sector.<P>Inégalités de revenu et pauvreté en Colombie - Partie 2. L'impact redistributif des impôts et prestations sociales<BR>Les inégalités de revenu se sont atténuées depuis le début des années 2000 mais elles restent beaucoup plus fortes que dans la plupart des autres pays. Si le fonctionnement du marché du travail est le principal facteur à l'origine de ces inégalités, il convient de noter que la richesse – et donc les revenus du capital – est aussi très inégalement répartie alors que les impôts et prestations sociales n'ont qu'un faible impact redistributif. Le montant des prélèvements obligatoires en pourcentage du PIB reste faible. Les taxes sur la consommation, qui tendent à être régressives, ont un poids prépondérant. La progressivité des impôts sur le revenu est amoindrie par les dispositifs d'allègements qui bénéficient aux plus fortunés et favorisent l'évasion fiscale. Le système fiscal devrait être réformé afin de renforcer sa progressivité et d'augmenter les recettes qui pourraient être utilisées pour mettre en place des politiques sociales plus ambitieuses. Les prestations sociales sont peu élevées et dominées par des programmes non-redistributifs, en particulier les pensions contributives. Les taux de scolarisation ont augmenté mais la qualité de l'éducation et l'équité d'accès, en particulier pour l'université, restent des défis importants. De même pour la santé, si des progrès remarquables ont été faits concernant la couverture, rendue presque universelle, le financement et l'organisation du système de santé pourraient être réformés afin d'augmenter la qualité des soins et de réduire les incitations au travail informel. |
| Keywords: | health, education, pensions, property tax, Colombia, value added tax, personal income tax, inequality, conditional cash transfers, water and electricity subsidies, santé, éducation, pensions, impôt sur le revenu, Colombie, impôt sur la propriété, inégalités, prestations sociales conditionnelles, subventions pour l'eau et l'électricité, impôt sur la valeur ajoutée |
| JEL: | H23 H24 H31 H4 H51 H53 H55 I14 I24 I38 |
| Date: | 2013–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1037-en&r=pub |