nep-pub New Economics Papers
on Public Finance
Issue of 2013‒04‒27
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the Efficiency of Equal Sacrifice Income Tax Schedules By Costa, Carlos Eugênio; Pereira, Thiago
  2. Structural and Cyclical Effects of Tax Progression By Jana Kremer; Nikolai Stähler
  3. Gender Norms, Work Hours, and Corrective Taxation By Aronsson, Thomas; Granlund, David
  4. Tax Policy with Uncertain Future Costs: Some Simple Models By Christopher Ball; John Creedy
  5. Tax evasion: Is this a government fight, or can anyone join? By Marcelo Arbex; Enlinson Mattos
  6. Average Marginal Income Tax Rates for New Zealand, 1907-2009 By Fiona McAlister; Debasis Bandyopadhyay; Robert Barro; Jeremy Couchman; Norman Gemmell; Gordon Liao
  7. The importance of choosing the data set for tax-benefit analysis By Ceriani, Lidia; Fiorio, Carlo V.; Gigliarano, Chiara
  8. Tax-benefit systems, income distribution and work incentives in the European Union By Jara Tamayo, Holguer Xavier; Tumino, Alberto
  9. EUROMOD: The European Union Tax-Benefit Microsimulation Model By Sutherland, Holly; Figari, Francesco
  10. Impact assessment of alternative reforms of child allowances using RUSMOD - the static tax-benefit microsimulation model for Russia By Popova, Daria
  11. Optimal fiscal policy By Jasper Lukkezen; Coen Teulings
  12. Federal Transfers and Fiscal Discipline in India: An Empirical Evaluation By Antra Bhatt; Pasquale Scaramozzino

  1. By: Costa, Carlos Eugênio; Pereira, Thiago
    Abstract: In an economy which primitives are exactly those in Mirrlees (1971), we investigatethe efficiency of labor income tax schedules derived under the equal sacrifice principle.Starting from a given government revenue level, we useWerning’s (2007b) approach toassess whether there is an alternative tax schedule to the one derived under the equalsacrifice principle that raises more revenue while delivering less utility to no one. Forour preferred parametrizations of the problem we find that inefficiency only arises atvery high levels of income. We also show how the multipliers of the Pareto problemmay be extracted from the data and used to find the implicit marginal social weightsassociated with each level of income.
    Date: 2013–04–18
  2. By: Jana Kremer (Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany); Nikolai Stähler (Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany)
    Abstract: In a real business cycle model with labor market frictions, we find that a more progressive tax schedule reduces structural unemployment as it fosters long-run incentives for job creation. Because there exists an optimal level of unemployment in a matching environment (“Hosios condition”), tax progression improves steady-state welfare up to a certain threshold and harms it beyond that. However, tax progression increases the costs of business cycles for those consumers who can save and borrow, while it reduces the business cycle costs for households with limited asset market participation (“rule-of-thumb” consumers). Our analysis suggests that business cycle effects dominate steady-state effects. On the aggregate level, tax progression is welfare-enhancing up to a certain threshold and always shifts relative utility from optimizing to rule-of-thumb consumers. These findings are quite robust to alternative calibrations of our model.
    Keywords: Tax Progression, Business Cycles, Automatic Stabilizers, Welfare
    JEL: H2 J6 E32 E62
    Date: 2013–04
  3. By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics); Granlund, David (Department of Economics, Umeå School of Business and Economics)
    Abstract: This paper deals with optimal income taxation based on a model with households where men and women allocate their time between market work and household production, and where households differ depending on which spouse has comparative advantage in market work. The purpose is to analyze the tax policy implications of gender norms represented by a market-work norm for men and household-work norm for women. We also distinguish between a welfarist government that respects all aspects of household preferences, and a paternalist government that disregards the disutility to households of deviating from the norms. The results show how the welfarist government may use tax policy to internalize the externalities caused by these norms, and how the paternalist government may use tax policy to make the households behave as if the norms were absent.
    Keywords: Social norms; household production; optimal taxation; paternalism
    JEL: D03 D13 D60 D62 H21
    Date: 2013–04–15
  4. By: Christopher Ball; John Creedy (The Treasury)
    Abstract: This paper considers the extent to which the standard argument, that the disproportionate excess burden of taxation suggests the use of tax-smoothing in the face of future cost increases, is modified by uncertainty regarding the future. The role of uncertainty and risk aversion are examined using several highly simplified models involving a possible future contingency requiring an increase in tax-financed expenditure.
    Keywords: Tax Smoothing; Uncertainty; Risk Aversion; Excess Burden
    JEL: H20 D81 D90
    Date: 2013–04
  5. By: Marcelo Arbex (Department of Economics, University of Windsor); Enlinson Mattos (São Paulo School of Economics, Getulio Vargas Foundation)
    Abstract: In the traditional optimal taxation literature, taxpayers and consumers are viewed and treated as potential tax evaders. We consider an optimal commodity taxation model where consumers have an important role as tax enforcers. Requesting purchase receipts (individual auditing) is time consuming and the government offers a fraction of the taxes collected to provide incentive for buyers to participate in the auditing activity. We show that tax rebates have a non-trivial income effect, which modifies the traditional (dual approach) "Ramsey equation". Tax-enforcement policies affect buyers' allocations directly, in addition to standard changes in the good's price. Comparing numerical results across three tax-enforcement regimes, we observe that welfare is higher if individual auditing is the only tax enforcement policy.
    Keywords: Optimal Taxation, Indirect Tax Evasion, Tax Enforcement and Auditing.
    JEL: E62 H21 H26 K42
    Date: 2013–04
  6. By: Fiona McAlister; Debasis Bandyopadhyay; Robert Barro; Jeremy Couchman; Norman Gemmell; Gordon Liao (The Treasury)
    Abstract: Estimates of marginal tax rates (MTRs) faced by individual economic agents, and for various ggregates of taxpayers, are important for economists testing behavioural responses to changes in those tax rates. This paper reports estimates of a number of personal marginal income tax rate measures for New Zealand since 1907, focusing mainly on the aggregate income-weighted average MTRs proposed by Barro and Sahasakul (1983, 1986) and Barro and Redlick (2011). The paper describes the methodology used to derive the various MTRs from original data on incomes and taxes from Statistics New Zealand Official Yearbooks (NZOYB), and discusses the resulting estimates.
    Keywords: Average marginal tax rates; New Zealand
    JEL: H20 H24
    Date: 2012–09
  7. By: Ceriani, Lidia; Fiorio, Carlo V.; Gigliarano, Chiara
    Abstract: Given the increased availability of survey income data, in this paper we analyse the pros and cons of alternative data sets for static tax-benefit microsimulation in Italy. We focus on all possible alternatives, namely using (a) SHIW or (b) IT-SILC data using a consistent net-to-gross microsimulation model, or IT-SILC data using the gross incomes provided since 2007. Our results suggest that IT-SILC improves in the regional representativeness of the Italian population and does not perform worse than SHIW as for most demographic characteristics, SHIW provides more information regarding building and real estate incomes. Gross income variables simulated by using the net-to-gross module included in the TABEITA microsimulation model and calibrating for tax evasion provide a very precise fit with external statistics, improving on results which could be obtained using the same TABEITA model on SHIW data. Simulated IT-SILC gross income data fit external aggregate data even better than gross income data provided in IT-SILC, which tend to largely overestimate self-employment income. Finally, we suggest to match IT-SILC with SHIW to include in the former the information on building and real estate incomes that are contained
    Date: 2013–03–28
  8. By: Jara Tamayo, Holguer Xavier; Tumino, Alberto
    Abstract: In this paper we study the impact of tax-benefit systems on income inequality and work incentivesacross the 27 Member States of the European Union (EU). Using EUROMOD, the EU-wide taxbenefitmicrosimulation model, we disentangle the role of taxes, benefits and social insurancecontributions in influencing country specific Gini coefficients and Marginal Effective Tax Rates.The extent to which tax-benefit systems contribute to income redistribution and provide work incentives at the intensive margin is found to vary considerably across the 27 Member States of the EU. Our results further highlight the presence of a trade-off between income redistribution and work incentives across EU-27 countries.
    Date: 2013–03–28
  9. By: Sutherland, Holly; Figari, Francesco
    Abstract: This paper aims to provide an introduction to the current state of the art of EUROMOD, the European Union tax-benefit microsimulation model. It explains the original motivations for building a multi-country EU-wide model and summarises its current organisation. It provides an overview of EUROMOD components, covering its policy scope, the input data, the validation process and some technical aspects such as the tax-benefit programming language and the user interface. The paper also reviews some recent applications of EUROMOD and, finally, considers future developments.
    Date: 2013–03–28
  10. By: Popova, Daria
    Abstract: RUSMOD is a static tax-benefit microsimulation model for Russia. The model can be used for ex post and ex ante evaluation of reforms of personal income taxation and social benefits in Russia. In addition, being compatible with EUROMOD, the Russian model is suitable for simulation of cross-country policy transfers. The aim of this paper is to shed light on various aspects of the model. It discusses specific problems arising in the evaluation of unreported income and benefits non-take up in Russia. The final estimates of poverty and inequality from RUSMOD are very close to those based on National accounts; hence, the model can be seen as a reliable tool for evaluating the current performance of the Russian tax-benefit system and the distributive impact of potential tax-benefit reforms. Then the paper provides an example of application of the model an analysis of alternative scenarios for improving the design of child allowances in Russia. Currently, this benefit has a poor targeting performance and varies across regions of Russia in terms of design and generosity, which raises serious equity concerns. Redirecting these resources to the poor by means of better targeting and raising the benefit amounts brings about significant improvements in overall and child poverty indicators even at the current level of spending. The most sizable impact on poverty is achieved by implementing the unified national design of the program.
    Date: 2013–03–28
  11. By: Jasper Lukkezen; Coen Teulings
    Abstract: This paper derives and estimates rules for fiscal policy that prescribe the optimal response to changes in unemployment and debt. We combine the reduced-form model of the economy from a linear VAR with a non-linear welfare function and obtain analytic solutions for optimal policy. The variables in our reduced-form model – growth, unemployment, primary surplus – have a natural rate that cannot be affected by policy. Policy can only reduce fluctuations around these natural rates. Our welfare function contains future GDP and unemployment, the relative weights of which determine the optimal response. The optimal policy rule demands an immediate and large policy response that is procyclical to growth shocks and countercyclical to unemployment shocks. This result holds true when the weight of unemployment in the welfare function is reduced to zero. The rule currently followed by policy makers responds procyclically to both growth and unemployment shocks, and does so much slower than the optimal rule, leading to significant welfare losses.
    JEL: E6 H6
    Date: 2013–04
  12. By: Antra Bhatt (University of Rome "Tor Vergata"); Pasquale Scaramozzino (University of Rome "Tor Vergata")
    Abstract: This paper examines the relationship between federal transfers and fiscal deficits in India. The system of federal transfers has been criticized on the grounds that it distorts the incentives for states to promote fiscal discipline. We analyze the relationship between transfers, state domestic product, and fiscal deficit for a panel of states during the period 1990–2010. The paper finds a positive long-run relationship and bi-directional causality between primary/gross fiscal deficits and non-plan transfers. Further, there is a negative long-run relationship and one-way causality between state domestic product and transfers. These results are confirmed by multi-variate cointegration analysis, which finds a long-run relationship between fiscal transfers, state product per capita and the primary deficit of the states. The evidence in the paper is consistent with the system of fiscal transfers being “gap-filling.”
    Keywords: Federal transfers, India, public finance, panel cointegration, panel ECM
    JEL: H77 R23 C33
    Date: 2013–04–17

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