nep-pub New Economics Papers
on Public Finance
Issue of 2013‒11‒02
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Understanding Changes in Progressivity and Redistributive Effects: The Role of Tax-Transfer Policies and Labour Supply Decisions By Nicolas Herault; Francisco Azpitarte
  2. Taxing bequests and consumption in the steady state By Johann Brunner; Susanne Pech
  3. Indirect Taxation, Public Pricing and Price Cap Regulation: a Synthesis By Valentini, Edilio
  4. Who benefits from partial tax coordination? By Yutao Han
  5. Taxing a Natural Resource with a Minimum Revenue Requirement By Patrick Gonzalez
  6. Missing Trader Fraud in European VAT By Sebastian Pfeiffer; Pavel Semerad
  7. Persistence or Convergence? The East-West Tax Morale Gap in Germany By Möhlmann, Axel
  8. Estimating the structural budget balance of the Australian Government: An update By Nu Nu Win; Simon Duggan; Phil Garton; Spiro Premetis; Bonnie Li
  9. An Evaluation of the Revenue side as a source of fiscal consolidation in high debt economies By Ritwik Banerjee
  10. The conditions of efficiency of a PPP for public finances By Alain Bonnafous; Bruno Faivre D'Arcier

  1. By: Nicolas Herault (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Francisco Azpitarte (Brotherhood of St Laurence; and Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: In this paper we propose a framework to study changes in the redistributive consequences of income taxes and transfers. In contrast with previous approaches the new method allows decomposition of the change in the redistributive impact into four components: the immediate effect of changes in the tax-transfer system in the absence of labour supply responses; the effect of labour supply changes induced by changes in the tax-transfer system; the effect of all other labour supply changes; and a residual capturing the variation not explained by the previous factors. We illustrate the use of our decomposition method by analysing the changes in the redistributive impact of the tax and transfer system in Australia between 1999 and 2007. We find that labour supply changes, and in particular the increase in employment rates over the period, explain to a large extent the observed reduction in the redistributive effect of the tax-transfer system. A sizable part of these labour supply changes were found to be direct responses to tax-transfer reforms. Interestingly, we find that tax reforms were not responsible for the observed reduction in tax progressivity.
    Keywords: Income, redistributive effect, labour supply, taxes and transfers
    JEL: H23 J22 D31
    Date: 2013–10
  2. By: Johann Brunner; Susanne Pech
    Abstract: We study the optimal tax system in a dynamic model where differences in wages induce differences in inheritances, and the transition from parent ability to child ability is described by a Markov chain. We characterize expected inheritances in the steady state and show that the Atkinson-Stiglitz result on the redundancy of indirect taxes does not hold in this framework. In particular, given an optimal income tax, a bequest tax as well as a consumption tax are potential instruments for additional redistribution. For the bequest tax the sign of the overall welfare e¤ect depends on the reaction of bequests and on inequality aversion, while for the consumption tax the sign is always positive because the distorting e¤ect is outweighed by the induced increase in wealth accumulation. A necessary condition for a positive welfare effect is the empirically validated relation that more able individuals on average have more able parents than less able individuals.
    Date: 2013–10
  3. By: Valentini, Edilio
    Abstract: It is well known that many standard results on optimal taxation and tax reforms have a straightforward counterpart in the monopoly pricing context and the Ramsey-Boiteux pricing rule represents the most obvious and well known example of this connection. What is less acknowledged, maybe even by many regulatory economists, is that this parallelism exists also with respect to a number of properties that characterize some types of price cap regulation. This paper reviews the economic literature that explored such properties, showing that there is a strong parallelism between the price cap results that are surveyed in this paper and those originating from the well-established theories on optimal indirect taxation and tax reforms, as well as public pricing.
    Keywords: Indirect taxation, public pricing, price cap regulation
    JEL: H21 L51
    Date: 2013–09–30
  4. By: Yutao Han (
    Abstract: In this paper, we investigate whether partial tax coordination is beneficial to countries within and outside a tax union, in which countries are supposed to compete in taxes and infrastructure. Our results demonstrate that, a subgroup of countries agreeing on a common tax rate, can harm both member and nonmember states. This is in contrast to the classical findings that partial tax harmonization is Pareto improving. When a minimum tax rate is imposed within a tax union, we demonstrate that it does not necessarily improve the welfare of the member countries. Moreover, both the high tax and low tax countries can be worse off. This is at odds with a classical result that a high tax country benefits from the imposition of a lower tax bound.
    Keywords: Tax competition, infrastructure competition, partial tax coordination, social welfare
    JEL: H21 H87 H73 F21 C72
    Date: 2013
  5. By: Patrick Gonzalez
    Abstract: The State may tax the extraction of a public natural resource in different ways. I consider the relative performances of a fixed fee, an ad valorem tax and a rent tax when the State must receive a minimal revenue for exploitation to take place. Taxing the resource may lower the probability that a firm will extract the resource. I show that the performance of each tax depends on the expected value of the resource: when it is high, the rent tax brings more revenue to the State; when it is low, the fixed fee is efficient while the rent tax does poorly. For an intermediate value, the ad valorem tax may bring the highest expected revenues among the three although it is always dominated by an hybrid tax that combines the latter two.
    Keywords: Rent, Royalties, Mining, Extraction Industry
    JEL: L71 H23 H25 Q34 Q38
    Date: 2013
  6. By: Sebastian Pfeiffer (Institute for Austrian and International Tax Law, Vienna University of Economics and Business); Pavel Semerad (Department of Accounting and Taxes, Faculty of Business and Economics, Mendel university in Brno)
    Abstract: This article deals with various aspects of carousel frauds in which missing traders play a crucial role during intra-union transactions. The most important question is how to stop this kind of crime, which causes a huge tax gap in collecting value added tax. In this paper a detailed analysis of fraud patterns including model calculations was carried out. Very important for tax administration in the European Union are judgments of the European Court of Justice dealing with questions concerning the controversial parts and interpretations of the law in Member States and the Directive. Several judgments from Austria, the Czech Republic and Germany aimed at fraud in value added tax were used. Special emphasis is devoted to the solution to tackle VAT and carousel frauds. The opinions of the authors and the European Union are discussed and new planned solutions to fraud are examined as well. Although QRM allows Member States to apply for an exemption to introduce reverse charge mechanism, the Czech Republic is used as a model example to show legal solutions after earlier unsuccessful application for reverse charge mechanism on fuel sale.
    Keywords: Carusel fraud, missing trader, value added tax, tax evasion
    JEL: H20 H26
    Date: 2013–10
  7. By: Möhlmann, Axel
    Abstract: This paper studies differences in tax morale attitudes between East and West Germany using multiple recent data sets. Contrary to previous 1990s evidence, but in line with recent studies on an east-west mentality gap, we find a persistent higher tax morale in East Germany and no indication of convergence over time. Distinguishing between region of living and birth and periods of within-country migration reveals that the East Germans who stayed determine the results and that migration vanishes differences. Regional economic heterogeneity of tax revenue transfers cannot explain the results. We find a framing effect on the tax morale gap with questions phrasing tax paying as the duty of a good citizen. This result suggests no gap of tax morale with moral reasoning related to the social order and citizenry.
    Keywords: tax morale, German reunification, east-west differences, convergence, moral reasoning
    JEL: H26 H73
    Date: 2013–03–15
  8. By: Nu Nu Win (Treasury, Government of Australia); Simon Duggan (Treasury, Government of Australia); Phil Garton (Treasury, Government of Australia); Spiro Premetis (Treasury, Government of Australia); Bonnie Li (Treasury, Government of Australia)
    Abstract: This Working Paper presents an overview of structural budget balance models and the adjustments most relevant for Australia. Three models (the OECD model, the IMF model and Treasury’s previously published model in the Australian Government’s 2009-10 Budget and McDonald et al (2010)) are discussed. Updated estimates of the Australian Government’s structural budget balance are presented alongside analysis showing the sensitivity of the results to plausible changes in key parameters. The updated structural budget balance estimates are based on the model used by McDonald et al (2010) and updated for the Australian Government’s 2013-14 Budget.
    Keywords: fiscal policy, cyclical adjustment, structural fiscal balance, commodity prices
    JEL: E62 H62 H69
    Date: 2013–05
  9. By: Ritwik Banerjee (Department of Economics and Business, Aarhus University)
    Abstract: Unsustainable levels of debt in some European economies are causing considerable strain in the Euro area. Successful debt consolidation in high debt economies is one of the most important important objective for the European policy makers. I use a dynamic general equilibrium closed economy model to compute the dynamic Laffer Curves for Portugal, Ireland, Greece and Spain for different class of taxes. The general equilibrium effects of the interaction of labor tax, consumption tax and capital tax is demonstrated. Location of each economy on its Laffer curve suggests that there exists a scope for considerable revenue generation by raising consumption and labor tax rates but no such possibilities exist for capital tax rate. Thus revenue generation with certain tax rates as instruments, may hold a key to successful and sustained debt reduction.
    Keywords: Laffer Curve, Public Debt, Portugal, Ireland, Greece, Spain
    JEL: E60 E62 H30
    Date: 2013–10–22
  10. By: Alain Bonnafous (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - École Nationale des Travaux Publics de l'État [ENTPE] - Université Lumière - Lyon II); Bruno Faivre D'Arcier (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - École Nationale des Travaux Publics de l'État [ENTPE] - Université Lumière - Lyon II)
    Abstract: Public authorities seem increasingly to be involving the private sector in financing, building and operating new infrastructures. A lot of reasons are usually given to justify this private sector involvement but the reasons which are the most frequently mentioned relate to the ability of a private operator to manage the construction and operation of the project more efficiently. This amounts to assuming that the Internal Rate of Return (IRR) of the project is not the same depending on whether it is managed by an administration or public body or by a company which in theory keeps abreast of the progress in optimization techniques which is taking place all the time. This difference is explained in many ways: the private sector pays some categories of staff less well, is more flexible, offers faster construction times which speed up the return on investment and is also more able to resist political demands which generate additional costs. Nevertheless, with a public or a private operator, there is a target IRR, very near the standard notion of Weighted Average Capital Cost (WACC), which is larger in the case of the private alternative because this cost must also include the operator's profit. Thus, if the main stake for the national government relates, for each project of public infrastructure, to the need of subsidies, the fundamental issue is the result of two opposite effects: on one hand the effect of a bigger efficiency of the private operator, on the other hand the effect of a lower WACC for the public operator. The objective of this communication is to propose a modelling of the determination of the need of public financing which formalizes these two effects and allows analyzing the conditions under which the PPP would be advantageous for the public finances. We propose for that a model of the mechanism of financing of the projects with a restricted number of parameters. This modelling will be confronted with real French cases of projects of toll highways in order to verify the relevance of the model and to determine the actual range of these parameters and their dispersal. An analysis will finally be proposed, according to the intrinsic profitability of the projects, the conditions under which a PPP can relieve the public spending. This conclusion joins many other authors in arguing against a systematic choice of one or other solution and suggesting rather that the most appropriate solution will depend on the circumstances of each case. The original contribution of this communication consists of an original formalization and of econometric estimations of these circumstances.
    Keywords: Transport Research ; transportation policy ; PPP ; Public Private Partnership ; transportation financing ; econometric estimations
    Date: 2013–07–15

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