nep-pub New Economics Papers
on Public Finance
Issue of 2013‒08‒31
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Discretionary tax measures: pattern and impact on tax elasticities By Savina Princen; Gilles Mourre; Dario Paternoster; George-Marian Isbasoiu
  2. Capital income taxation: Reframing the debate By Alan D. Viard
  3. The distributional effects of taxes and transfers under alternative income concepts: the importance of three ‘I’s By Figari, Francesco; Paulus, Alari
  4. The effect of state and local sales taxes on employment at state borders By Jeffrey P. Thompson; Shawn M. Rohlin
  5. Tax Competition and Double Tax Treaties with Mergers and Acquisitions By Siggelkow, Benjamin Florian
  6. The extreme dangers of a deposit tax By John H. Makin
  7. Effects of supervision on tax compliance: Evidence from a field experiment in Austria By Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann
  8. Flexible Pension Take-up in Social Security By Adema, Y.; Bonenkamp, J.; Meijdam, A.C.

  1. By: Savina Princen; Gilles Mourre; Dario Paternoster; George-Marian Isbasoiu
    Abstract: This paper provides evidence on the size, composition and cyclicality of discretionary tax measures (DTM), using a new database developed by the Output Gap Working Group. While their average magnitude is fairly limited over a long period with discretionary tax cuts being offset by discretionary tax hikes, they can be non-negligible at any given point in time. The cyclical pattern of DTM appears irregular and depends on the policy regime. While small pro-cyclical discretionary tax cuts were seen during the pre-crisis period, larger counter-cyclical tax breaks were adopted at the start of the crisis period, followed by pro-cyclical tax hikes in a context of substantial public finance consolidation. The paper also examines the impact of DTM on tax elasticities in the EU for broad tax categories over the period 2001-12: DTM do not seem to explain the bulk of the large short-term fluctuation in gross elasticities of tax receipts to GDP. The availability of DTM also allows for an analytical illustrative exercise, computing variants of the cyclically adjusted balance (CAB) based on time-varying elasticities (net of discretionary measures) instead of on constant elasticities. However, the indicators turn out to be extremely erratic and plagued by statistical 'noise', which makes them difficult to interpret in practice. The fact that elasticities change sign frequently and that their strong movements offset each other over a number of years also suggests that the short-term variations may largely be driven by time lags between revenue collection and revenue bases. Therefore, the CAB variants cannot be seen as an adequate solution for addressing the issues faced by the CAB.
    JEL: E32 H2 H3 H6
    Date: 2013–06
  2. By: Alan D. Viard (American Enterprise Institute)
    Abstract: Opponents of capital income taxation must reframe the policy debate by explaining the economic disadvantages of capital income taxes and proposing alternative budgetary measures that maintain tax fairness.
    Keywords: corporate taxation,capital income taxes,AEI on Campus,taxation
    JEL: A H
    Date: 2013–07
  3. By: Figari, Francesco; Paulus, Alari
    Abstract: This paper investigates how the distribution of income changes when the standard definition of disposable income is replaced by an extended income concept which takes into account the three Is: indirect taxes, imputed rent, and in-kind benefits. Second, it assesses how sensitive the distributional effects of each tax-benefit instrument are to the choice of income concept. The analysis covers three European countries (Belgium, Greece and the UK) characterised by substantially different tax-benefit systems, giving a stronger base for generalising the results. The main findings are that the overall redistributive effect of the tax-benefit systems depends heavily on the income concept considered and the differences across countries are smaller when considering the extended income distribution. Moreover, the common use of a narrower income concept, such as the disposable income, can lead to the overestimation of the redistributive effect of the cash tax-benefit instruments (in relative terms), the extent of this varying across countries, due to the size and distribution of three Is and the adoption of the needs-adjusted equivalence scale.
    Date: 2013–08–22
  4. By: Jeffrey P. Thompson; Shawn M. Rohlin
    Abstract: This paper estimates the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed data set of local tax rates. Sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state. The effects also represent an upper-bound, largely driven by employment shifting across the state border. We also find that employment in food and beverage stores is negatively affected when cross-border neighbors adopt low sales tax rates on food.
    Date: 2013
  5. By: Siggelkow, Benjamin Florian
    Abstract: In a two-period tax competition model with provision of local public goods, we analyze efficiency properties of double taxation reliefs incorporating either the exemption method, the tax credit system or the full taxation after deduction system. Foreign direct investments are presumed to be one-way and characterized by long-term mergers and acquisitions. We find that in case of (i) tax revenue maximization the exemption method implies inefficiently low tax rates, whereas the full taxation after deduction system leads to inefficiently low / efficient / inefficiently high tax rates. In case of (ii) welfare maximization each of these tax rules can be efficient. The (limited) tax credit system, however, is shown to always result in inefficiently low / inefficiently high tax rates. A numerical example reveals that no tax regime per se entails efficiency. In case of (i), a ranking of tax systems subject to the Pareto criterion is shown to depend on the parameters of the production function. Regarding (ii) the exemption method is preferable as it is proven to be the least inefficient tax regime.
    Keywords: tax competition, double taxation relief, tax rules, profit taxation, mergers and acquisitions
    JEL: H21 H73 H87
    Date: 2013
  6. By: John H. Makin (American Enterprise Institute)
    Abstract: Cyprus and other economically beleaguered nations should avoid deposit taxes and instead attempt to reassure their citizens of the security of their bank deposits if they hope to rebuild their economies.
    Keywords: Cyprus,banking,Economic outlook,Eurozone crisis
    JEL: A F
    Date: 2013–03
  7. By: Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann
    Abstract: The tax compliance literature has mainly focused on individual tax evasion rather than firm tax evasion. In general, there is a lack of field experiments on the topic, and measuring tax compliance is challenging. To address this shortcoming in the literature, we conduct a field experiment on firm tax compliance looking at newly founded firms. As a novelty we explore how firms react to closer supervision by the tax administration, looking at timely paying which has no measurement biases. Interestingly, we observe a crowding-out effect of supervision on timely paying of taxes. On the other hand, for those who were non-compliant, supervision reduced the tax amount that was due.
    Keywords: tax compliance; tax evasion; field experiment; deterrence; tax enforcement; supervision
    JEL: H26 C93 K42
    Date: 2013–08
  8. By: Adema, Y.; Bonenkamp, J.; Meijdam, A.C. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper studies the redistribution and welfare effects of increasing the flexibility of individual pension take-up. We use an overlapping-generations model with Beveridgean pay-as-you-go pensions, where individuals differ in ability and life span. We find that introducing flexible pension take-up can induce a Pareto improvement when the initial pension scheme contains within-cohort redistribution and induces early retirement. Such a Pareto-improving reform entails the application of uniform actuarial adjustment of pension entitlements based on average life expectancy. Introducing actuarial non-neutrality that stimulates later retirement further improves such a flexibility reform.
    Keywords: redistribution;retirement;flexible pensions.
    JEL: H55 H23 J26
    Date: 2013

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