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on Public Finance |
| By: | Dirk Krueger; Alexander Ludwig |
| Abstract: | In this paper we characterize quantitatively the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogeneous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generating a non-trivial trade-off for the benevolent utilitarian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo. |
| Keywords: | Progressive Taxation, Capital Taxation, Optimal Taxation |
| JEL: | E62 H21 H24 |
| Date: | 2013–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0060&r=pub |
| By: | Kremer, Jana; Stähler, Nikolai |
| 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 steadystate 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:152013&r=pub |
| By: | Catarina Reis (Universidade Catolica Portuguesa); Vasia Panousi (Federal Reserve Board) |
| Abstract: | We examine the optimal taxation of capital in a Ramsey setting of a general-equilibrium heterogeneous-agent economy with uninsurable idiosyncratic investment or capital-income risk. We fully characterize the optimal tax in the case where there is no safe income in the economy. When the interest rate is allowed to adjust to changes in the capital tax, the optimal capital tax is always constant, even off steady state, and is positive when the variance of risk is higher than the mean return to the risky asset. When the interest rate is exogenously fixed, the optimal capital tax is zero. Therefore, general-equilibrium considerations are crucial for the dynamic effects of capital taxation when investment is risky. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:732&r=pub |
| By: | Barth, Erling (Institute for Social Research); Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Ognedal, Tone (Universitetet i Oslo, Økonomisk institutt) |
| Abstract: | In this paper we analyse how fairness considerations, in particular considerations of just income distribution, affect whether or not people find tax evasion justifiable and their willingness to evade taxes. Using data from the Norwegian “Hidden Labour Market Survey” we show that individuals with low hourly wages and long working hours have a higher probability of justifying tax evasion. These are individuals that arguably are treated unfairly in a tax system that taxes an individual’s total income without taking into account how many hours the individual has worked. The same individuals are also more willing and likely to take home income without reporting it to the tax authorities. The results are consistent with a model in which individuals make a trade-off between economic gains and fairness considerations when they make decisions about tax evasion. Taken together our results suggest that considerations of fair income distribution are important for the analysis of tax evasion. |
| Keywords: | Tax evasion; redistributive taxation; fair income distribution. |
| JEL: | D63 H26 |
| Date: | 2013–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2013_011&r=pub |
| By: | Zuzana Berná; Jiøí Špalek (Department of Public Economics, Masaryk University) |
| Abstract: | This paper deals with the effects of introducing adequate punishment opportunities in experiments with public goods. Decentralized punishment means that the contributing subjects have a possibility to sanction free riders without the intervention of an external authority. The very first experiments demonstrated a significantly positive effect of a punishment opportunity on enhancing cooperation in situations of social dilemma. Following studies, however, pointed at limited effectiveness of this mechanism. The first part of the paper summarizes selected literature on the topic and presents its principal findings. The second part is dedicated to the presentation of the results of an experimental series on decentralized punishment realized in the Czech Republic. The last part introduces possible questions and topics which may be subject of future research within this area. |
| Keywords: | economic experiment, cooperation, public goods, decentralized punishment, partner and stranger matching |
| JEL: | C92 D70 H41 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:mub:wpaper:05&r=pub |