nep-pub New Economics Papers
on Public Finance
Issue of 2013‒09‒24
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Pathways to Tax Reform Revisted By Leonard Burman; ;
  2. Jointly optimal taxes and enforcement policies in response to tax evasion By PESTIEAU, Pierre; POSSEN, Uri M.; LUTSKY, Steven M.
  3. Tax bracket creep and its effects on income distribution By Heer, Burkhard; Süssmuth, Bernd
  4. Housing and Tax Policy By Sami Alpanda; Sarah Zubairy
  5. Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes By Wojciech Kopczuk; Justin Marion; Erich Muehlegger; Joel Slemrod
  6. Does size asymmetry exacerbate the inefficiency of tax competition? By Yutao Han; Patrice Pieretti; Benteng Zou
  7. Tax Coordination, Tax Competition, and Revenue Mobilization in the West African Economic and Monetary Union By Mario Mansour; Gregoire Rota Graziosi
  8. “The relationship between debt level and fiscal sustainability in OECD countries” By Mariam Camarero; Josep Lluís Carrion-i-Silvestre; Cecilio Tamarit
  9. How to share the cost of a public good? By CHAMPSAUR, Paul

  1. By: Leonard Burman (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020); ;
    Abstract: The U.S. income tax badly needs reform. It is complex, unfair, and inefficient. It doesn’t come close to raising enough revenue to finance government expenditures, and won’t any time in the foreseeable future unless it is revised. Raising tax rates could increase revenues, but it wouldn’t lessen the complexity and would magnify the unfairness and efficiency costs. Not surprisingly, proposals for reform abound. Income tax reform proposals would virtually all trim so-called tax expenditures, the 200 or so exclusions, deductions, and credits that are designed to provide subsidies for particular activities or groups. This would surely make the late Stanley Surrey smile. He invented the term tax expenditure and instructed the Treasury Department to compile a list and tally up their cost. He viewed cuts in tax expenditures as the “pathway to tax reform,†and in 1973 made the case in a book of that title. Surrey and latter-day reformers are surely right that cutting tax expenditures could raise revenue while reducing the economic cost of the tax system and making it simpler and fairer. The only drawback is political: voters like tax expenditures, the biggest of which are the mortgage interest deduction and the tax break on employer-sponsored health insurance. Simply eliminating people’s favorite tax breaks is unlikely to win much public support. This paper revisits Surrey’s pathway, examining various proposals to eliminate, reduce, or reformulate tax expenditures as part of tax reform. I start by outlining the need for tax reform. Then I examine various proposed paths to achieve it. I discuss options to cut tax expenditures and the efficacy of a VAT or carbon tax as a supplement to the income tax. The concluding section summarizes the potential pathways and a few dead ends on the way to tax reform. Key Words: Tax Expenditures; Federal Budget; Deficits; Tax Reform JEL No. H21, H24, H50, H60
  2. By: PESTIEAU, Pierre; POSSEN, Uri M.; LUTSKY, Steven M.
  3. By: Heer, Burkhard; Süssmuth, Bernd
    Abstract: We quantitatively analyze the way inflation alters the inequality of the income distribution in the U.S. economy. The main mechanism emphasized in this paper is the bracket creep effect according to which inflation pushes income into higher tax brackets. Governments adjust the nominal income tax brackets slowly and incompletely due to the rise in prices. In the U.S. postwar history, this typically happens less often than once every other tax year. In the first part of the paper, we study time series from the U.S. economy. As our central result we find that irrespective of the level of inflation more frequent income tax schedule adjustments make the relationship between inflation and income inequality more transitory in nature. In the second part of the paper, we develop a general equilibrium monetary model with income heterogeneity that is in line with our time series evidence. We find that a longer duration between two successive adjustments of the tax schedule reduces employment, savings, and output. --
    Keywords: Bracket Creep,Progressive Income Taxation,Inflation,Income Distribution
    JEL: D31 E31 E44 E52 E62
    Date: 2013
  4. By: Sami Alpanda; Sarah Zubairy
    Abstract: In this paper, we investigate the effects of housing-related tax policy measures on macroeconomic aggregates using a dynamic general-equilibrium model. The model features borrowing and lending across heterogeneous households, financial frictions in the form of collateral constraints tied to house prices, and a rental housing market alongside owner-occupied housing. Using our model, we analyze the effects of changes in housing-related tax policy measures on the level of output, tax revenue and household debt, along with other macroeconomic aggregates. The tax policies we consider are (i) increasing property tax rates, (ii) eliminating the mortgage interest deduction, (iii) eliminating the depreciation allowance for rental income, (iv) instituting taxation of imputed rental income from owner-occupied housing and (v) eliminating the property tax deduction. We find that among these fiscal tools, eliminating the mortgage interest deduction would be the most effective in raising tax revenue, and in reducing household debt, per unit of output lost. On the other hand, eliminating the depreciation allowance for rental income would be the least effective. Our experiments also highlight the differential welfare impact of each tax policy on savers, borrowers and renters.
    Keywords: Economic models; Fiscal Policy
    JEL: E62 H24 R38
    Date: 2013
  5. By: Wojciech Kopczuk; Justin Marion; Erich Muehlegger; Joel Slemrod
    Abstract: The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.
    JEL: H22 H26 H71 Q48
    Date: 2013–09
  6. By: Yutao Han (CREA, Université du Luxembourg); Patrice Pieretti (CREA, Université du Luxembourg); Benteng Zou (CREA, Université du Luxembourg)
    Abstract: Many authors demonstrate that the tax gap resulting from tax competition increases with the size asymmetry of the competing countries. Consequently, increasing country-size disparities exacerbates the inefficiency of tax competition. The aim of this note is to show that this classical view has no general validity if we consider that countries compete not only in taxes but also in the provision of infrastructure. The simple model we develop for this purpose demonstrates that the effect of size disparity on efficiency depends crucially on the degree of international capital mobility.
    Keywords: tax competition, social welfare, inefficiency, infrastructure
    JEL: H21 H73 F21
    Date: 2013–08
  7. By: Mario Mansour; Gregoire Rota Graziosi
    Abstract: We review the current state of the West African Economic and Monetary Union’s tax coordination framework, against the main objectives of the WAEMU Treaty of 1994: reduce distortions to intra-community trade, and mobilize domestic tax revenue. The process of tax coordination in WAEMU is one of the most advanced in the world—de jure at least—, but remains in many areas ineffective de facto. Nevertheless, the framework has, to some extent, succeeded in converging tax systems, particularly statutory tax rates, and may have contributed to improving revenue mobilisation. Important lessons can be drawn from the WAEMU experience, particularly in terms of whether coordination should take the form of harmonization through a top-down approach, or a softer approach of sharing best practice and limiting certain types of tax competition.
    Keywords: Tax policy;West African Economic and Monetary Union;Revenue mobilization;Tax revenues;tax coordination; tax harmonization; tax competition.
    Date: 2013–07–09
  8. By: Mariam Camarero (Jaume I University); Josep Lluís Carrion-i-Silvestre (Faculty of Economics, University of Barcelona); Cecilio Tamarit (University of Valencia)
    Abstract: In this paper we unify the traditional approaches to testing for fiscal sustainability considering the stock-flow system that fiscal variables configure. Our approach encompasses previous ways of testing for sustainability. The results obtained for a group of 17 OECD countries point to weak fiscal sustainability, as well as to the existence of cointegration between deficit and debt, confirming the relevance of the stock-flow approach. Allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the fiscal authorities apply their policies looking for sustainability and whether, simultaneously, they try to stabilize real debt target levels..
    Keywords: fiscal sustainability, cointegration, unit roots, structural breaks. JEL classification: H62, E62, C22.
    Date: 2013–09
  9. By: CHAMPSAUR, Paul

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