nep-pub New Economics Papers
on Public Finance
Issue of 2013‒07‒15
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation and democratization By Baskaran, Thushyanthan
  2. Imperfect Competition and Optimal Taxation By Andrea Colciago
  3. No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax By Dina Pomeranz
  4. Is Tax Compliance a Social Norm? A Field Experiment By Pietro Battiston; Simona Gamba
  5. Continuous-Time Public Good Contribution under Uncertainty By Giorgio Ferrari; Jan-Henrik Steg; Frank Riedel

  1. By: Baskaran, Thushyanthan
    Abstract: Anecdotal evidence from pre-modern Europe and North America suggests that rulers are forced to become more democratic once they impose a significant fiscal burden on their citizens. One difficulty in testing this taxation causes democratization hypothesis empirically is the endogeneity of public revenues. I use introductions of value added taxes and autonomous revenue authorities as sources of quasi-exogenous variation to identify the causal effect of the fiscal burden borne by citizens on democracy. The instrumental variables regressions with a panel of 122 countries over the period 1981-2008 suggest that revenues had on average a mild positive effect on democracy. --
    Keywords: taxation,democracy,democratic transition,tax innovations
    JEL: H20 P14 O23
    Date: 2013
  2. By: Andrea Colciago
    Abstract: This paper provides optimal labor and dividend income taxation in a general equilibrium model with oligopolistic competition and endogenous firms' entry. In the long run the optimal dividend income tax corrects for inefficient entry. The dividend income tax depends on the form of competition and nature of the sunk entry costs. In particular, it is higher in market structures characterized by competition in quantities with respect to those characterized by price competition. Oligopolistic competition leads to an endogenous countercyclical price markup. As a result offsetting the distortions over the business cycle requires deviations from full tax smoothing.
    Keywords: Firms' Entry; Market Stuctures; Market Distortions; Optimal Dividend Income Tax
    JEL: E62 L13
    Date: 2013–06
  3. By: Dina Pomeranz
    Abstract: Tax evasion generates billions of dollars of losses in government revenue and creates large distortions, especially in developing countries. Claims that the VAT facilitates tax enforcement by generating paper trails on transactions between firms have contributed to widespread VAT adoption worldwide, but there is little empirical evidence about this mechanism. This paper analyzes the role of third party information for VAT enforcement through two randomized experiments among over 400,000 Chilean firms. Announcing additional monitoring has less impact on transactions that are subject to a paper trail, indicating the paper trail's preventive deterrence effect. Tax enforcement leads to strong spillovers up the VAT chain, increasing compliance by firms' suppliers. These findings confirm that when evasion is taken into account, significant differences emerge between otherwise equivalent forms of taxation.
    JEL: H25 H26 O17 O23
    Date: 2013–07
  4. By: Pietro Battiston; Simona Gamba
    Abstract: We study the effect of social pressure on tax compliance, focusing on the compliance of shop sellers to the legal obligation of releasing tax receipts for each sale. We carry out a field experiment on bakeries in Italy, where a strong gap exists between the legal obligation and the actual behavior of sellers. Social pressure is manipulated by means of an explicit request for a receipt when not released. We find that a single request for a receipt causes a 17 per cent rise in the probability of a receipt being released for a sale occurring shortly thereafter. This provides evidence of a social scal multiplier: on average, a single request for a receipt causes 2.38 additional receipts being released overall.
    Keywords: Tax evasion, field experiments, social norms, social pressure
    JEL: H32 K34 E62
    Date: 2013–07
  5. By: Giorgio Ferrari (Bielefeld University); Jan-Henrik Steg (Bielefeld University); Frank Riedel (Bielefeld University)
    Abstract: We study a continuous-time problem of optimal public good contribution under uncertainty for an economy with a finite number of agents. Each agent can allocate his wealth between private consumption and repeated but irreversible contributions to increase the stock of some public good. We study the corresponding social planner problem and the case of strategic interaction between the agents and we characterize the optimal investment policies by a set of necessary and sufficient stochastic Kuhn-Tucker conditions. Suitably combining arguments from Duality Theory and the General Theory of Stochastic Processes, we prove an abstract existence result for a Nash equilibrium of our public good contribution game. Also, we show that our model exhibits a dynamic free rider effect. We explicitly evaluate it in a symmetric Black-Scholes setting with Cobb-Douglas utilities and we show that uncertainty and irreversibility of public good provisions do not affect free-riding.
    Keywords: irreversible investment, singular stochastic control, first order conditions for optimality, stochastic games, Nash equilibrium, free-riding
    JEL: C02 C61 C62 C73
    Date: 2013–07

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