nep-pub New Economics Papers
on Public Finance
Issue of 2014‒02‒15
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Tax Progressivity: An Analytical Framework By Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L.
  2. A Theory of Top Income Taxation and Social Insurance By Francisco M. Gonzalez; Jean-Francois Wen
  3. Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare By Stark, Oded; Jakubek, Marcin; Falniowski, Fryderyk
  4. An Empirical Model of Tax Convexity and Self-Employment By Jean-Francois Wen; Daniel V. Gordon
  5. The Foreign Investment Effects of Tax Treaties By Arjan Lejour
  6. The Effect of Income Heterogeneity in An Experiment with Global and Local Public Goods By Kohei Nitta
  7. Ambiguity on audits and cooperation in a public goods game By Zhixin Dai; Robin M. Hogarth; Marie Claire Villeval
  8. Tax-price elasticity of charitable donations: Evidence from the German taxpayer panel By Adena, Maja
  9. Property Tax Delinquency - Social Contract in Crisis: The Case of Detroit By Alm, James; Hodge, Timothy R.; Sands, Gary; Skidmore, Mark
  10. Minority Policies of Turkey and Wealth Tax of 1942 By Kaya, Furkan

  1. By: Heathcote, Jonathan (Federal Reserve Bank of Minneapolis); Storesletten, Kjetil (University of Oslo); Violante, Giovanni L. (New York University)
    Abstract: What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, progressivity reduces incentives to work and to invest in skills, and aggravates the externality associated with valued public expenditures. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preferences, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the externality linked to valued government purchases play quantitatively similar roles in limiting desired progressivity.
    Keywords: Progressivity; Income distribution; Skill investment; Labor supply; Partial insurance; Valued government expenditures; Welfare
    JEL: D30 E20 H20 H40 J22 J24
    Date: 2014–01–31
  2. By: Francisco M. Gonzalez; Jean-Francois Wen (University of Calgary)
    Abstract: The development of the welfare state in the Western economies between 1930 and 1990 coincided with a puzzling pattern in the taxation of top incomes. Effective tax rates at the top increased sharply but then gradually decreased, even as social transfers continued rising. We propose a new theory of the development of the welfare state to explain these facts. Our main insight is that social insurance and top income taxation are substitutes for averting social confl‡ict. We emphasize the role of the Great Depression as a source of aggregate risk, and argue that the rise of the welfare state can be understood as a process of exploiting efficiency gains in response to gradual technological improvements in the provision of social insurance. Our detailed arguments build on the policy histories of the United States, Great Britain, and Sweden.
    Date: 2014–02–03
  3. By: Stark, Oded; Jakubek, Marcin; Falniowski, Fryderyk
    Abstract: Under a deadweight loss of tax and transfer, there is tension between the optimal policy choices of a Rawlsian social planner and a utilitarian social planner. However, when with a weight greater than a certain critical value the individuals’ utility functions incorporate distaste for low relative income, a utilitarian will select exactly the same income distribution as a Rawlsian.
    Keywords: Maximization of social welfare, Rawlsian social welfare function, Utilitarian social welfare function, Deadweight loss, Distaste for low relative income, Institutional and Behavioral Economics, Labor and Human Capital, D31, D60, H21, I38,
    Date: 2014–01–24
  4. By: Jean-Francois Wen (University of Calgary); Daniel V. Gordon
    Abstract: Do progressive marginal income tax rates discourage self-employment? We assume risk neutrality to construct an implicit surtax on stochastic income relative to steady income, arising from a convex tax schedule. It is computed as part of a structural probit model with earnings equations and a tax simulator. The tax convexity variable and the net-of-tax income difference between self- and paid-employment have the predicted signs and high levels of statistical signifi…cance for the probability of self-employment. A simulated ‡at tax reform suggests the tax effects are small.
    Date: 2014–02–03
  5. By: Arjan Lejour
    Abstract: We examine the impact of bilateral and multilateral tax treaties on bilateral FDI stocks. First, we present panel regressions of the effects of treaties on FDI based on an extensive database of all OECD countries from 1985 onwards. We use geographic instruments to correct for the endogeneity of tax treaties. In contrast to many papers, we find that these treaties increase bilateral FDI significantly. The increase is about 16 percent and for new treaties this is even 21 percent. Moreover, the EU parent subsidiary directive doubles bilateral FDI stocks. Second, we analyse the effects of treaty shopping on FDI using the number of tax treaties as a proxy for the attractiveness of a country for establishing a holding. This indicator has a significant impact on FDI: twenty extra tax treaties increase bilateral FDI stocks by about 50 percent. Lower withholding tax rates of dividends do also attract FDI.
    JEL: F21 F23 H25
    Date: 2014–02
  6. By: Kohei Nitta (Department of Economics, University of Hawaii at Manoa)
    Abstract: Public goods such as national defense or climate change mitigation affect people in multiple locations. We report on a linear public goods experiment, where subjects can contribute not only to a local public good but also to a global public good. We study the effects of endowment heterogeneity by comparing a setting where two localities have the same income (homogeneous treatment) with a setting where the localities differ in income (heterogeneous treatment). We find that: 1) social efficiency is higher in the homogeneous treatment than in the heterogeneous treatment; 2) the efficiency difference comes from two aspects: the shift from global to local public good contribution and lower total public goods provision in the heterogeneous treatment; and 3) inequality aversion and reciprocity play a role in contribution behavior in the heterogeneous treatment; however these social preferences do not fully counter the efficiency loss caused by the endowment heterogeneity. Our findings suggest that policy interventions may be necessary to increase social efficiency with heterogeneous wealth and multiple public goods.
    Keywords: Voluntary contribution mechanism; Multiple public goods; Income heterogeneity; Inequality; Reciprocity
    JEL: C92 D63 D64 H41
    Date: 2014–02
  7. By: Zhixin Dai (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Robin M. Hogarth (Department of Economics and Business, Universitat Pompeu Fabra and Barcelona Graduate School of Economics, Ramon Trias Fargas, 25–27, 08005 Barcelona, Spain); Marie Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We investigate the impact of various audit schemes on the future provision of public goods, when contributing less than the average of the group is sanctioned exogenously and the probability of an audit is unknown. We study how individuals update their beliefs about the probability of being audited, both before and after audits are definitely withdrawn. We find that when individuals have initially experienced systematic audits, they decrease both their beliefs and their contributions almost immediately after audits are withdrawn. In contrast, when audits were initially less frequent and more irregular, they maintain high beliefs about the probability of being audited and continue cooperating long after audits have been withdrawn. Inconsistency in experiencing audits across time clearly increases the difficulty of learning the true audit probabilities. Thus, conducting less frequent and irregular audits with higher fines can increase efficiency dramatically.
    Keywords: Ambiguity, audits, sanctions, beliefs, cooperation, public goods, experiment
    JEL: C92 H41 D83
    Date: 2014
  8. By: Adena, Maja
    Abstract: I estimate permanent and transitory tax-price and income elasticity of charitable giving in Germany using a rich panel data of tax return for the years 2001-2006. Income tax reforms were implemented in 2004 and 2005. The results suggest that the permanent tax-price elasticity varies significantly by income class, ranging from -0.2 for low incomes to -1.6 for higher incomes. Permanent income elasticity does not vary much among income classes, is rather low, and ranges between 0.2-0.3. The donors adjust their donations gradually after changes in the tax schedule and respond to future predictable changes in price. They respond to changes in current and, to a smaller extent, in future income. -- In dieser Studie wurde die permanente und transitorische Steuerpreis- und Einkommenselastizität der Spenden in Deutschland geschätzt. Basis für die Schätzung ist das umfangreiche Taxpayer-Panel, welches alle Steuermerkmale der Steuerzahler in Deutschland für die Jahre 2001-2006 erfasst. Die Ergebnisse suggerieren, dass die permanente Steuerpreiselastizität, je nach Einkommensklasse, sich stark unterscheidet; sie reicht von -0.2 für niedrige Einkommen bis -1.6 für höhere Einkommen. Dahingegen ist die permanente Einkommenselastizität für unterschiedliche Einkommensklassen ähnlich; insgesamt ist sie sehr niedrig und liegt zwischen 0.2 und 0.3. Spender passen ihre Spendenentscheidung nach Steueränderungen verzögert an, sie reagieren auch auf zukünftige vorausschaubare Preisänderungen. Sie reagieren auf aktuelle und weniger auf zukünftige Änderungen des Einkommens.
    Keywords: charitable giving,price elasticity,tax incentives
    JEL: H24 H31 D12
    Date: 2014
  9. By: Alm, James; Hodge, Timothy R.; Sands, Gary; Skidmore, Mark
    Abstract: In this paper we develop a theoretical model of the individual decision to become delinquent on one’s property tax payments. We then apply the model to the City of Detroit, Michigan, USA, where the city is in the midst of bankruptcy proceedings, and a rate of property tax delinquency of 48 percent, resulting in uncollected tax revenues of about 20 percent. We use detailed parcellevel data for Detroit to evaluate the factors that affect both the probability that a property owner is tax delinquent and, conditional upon delinquency, the magnitude of the delinquency. Our estimates show that properties that have lower value, longer police response times, are nonhomestead (non-owner occupied residential properties), have a higher statutory tax rate, have a higher assessed value relative to sales price, are owned by a financial institution or by a Detroit resident, are delinquent on water bills, and for which the probability of enforcement is low are more likely to be tax delinquent These findings can be used to inform policies targeted at improving tax compliance within the City.
    Keywords: Property tax, Delinquency, Tax compliance,
    Date: 2014
  10. By: Kaya, Furkan
    Abstract: This paper focuses on minorities in Turkey and influences of Second World War period which caused internal discomforts and inequalities upon Turkish minorities. First i review the position of minorities and contribute the framework for understanding the place of non-Muslim groups in Turkey, their challenges and dissapointments as well. Then try to enlighten effects of Second World War period on Turkish minorities and responses in Turkish society. Basically, Jewish people who escaped from Holocaust, the recruitment process of minorities and economic Turkification period, such as; Welath Tax of 1942 are handled in this article.
    Keywords: Minorities, Wealth Tax, Turkey, Jews,
    JEL: B00 H2
    Date: 2014–02–12

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