nep-pub New Economics Papers
on Public Finance
Issue of 2014‒04‒18
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Household debt and the dynamic effects of income tax changes By Cloyne, James; Surico, Paolo
  2. Capital Taxation under Political Constraints By Florian Scheuer; Alexander Wolitzky
  3. Dividend taxes and income shifting By Alstadsæter, Annette; Jacob, Martin
  4. Real tax effects and tax perception effects in decisions on asset allocation By Fochmann, Martin; Hemmerich, Kristina
  5. Environmental Levies, Distortionary Taxation and Increasing Returns By Wenli Cheng; Dingsheng Zhang; CEMA
  6. Optimal Environmental Tax-Subsidy Regime in the Presence of Increasing Returns By Wenli Cheng; Dingsheng Zhang; CEMA
  7. Fiscal decentralisation and its effects on the health sector in Pakistan By Reayat, Nauman; Ahmad, Iftikhar; Khalil, Jehanzeb; Rahim, Tariq

  1. By: Cloyne, James (Bank of England); Surico, Paolo (London Business School)
    Abstract: Using a long span of expenditure survey data and a new narrative measure of exogenous income tax changes for the United Kingdom, we show that households with mortgage debt exhibit large and persistent consumption responses to changes in their income. Homeowners without a mortgage, in contrast, do not appear to react, with responses not statistically different from zero at all horizons. Splitting the sample by age and education yields more limited evidence of heterogeneity as the distributions of these demographics tend to overlap across housing tenure groups. We interpret our findings through the lens of traditional and more recent theories of liquidity constraints, providing a novel interpretation for the aggregate effects of tax changes on the economy.
    Keywords: mortgage debt; narrative tax changes; liquidity constraints
    JEL: E21 E62 H31
    Date: 2014–03–28
  2. By: Florian Scheuer; Alexander Wolitzky
    Abstract: This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, credible policies are those that will continue to attract enough political support in the future. If the only credible reform threat is to fully equalize consumption, we find that optimal marginal capital taxes are U-shaped, so that savings are subsidized for the middle class but are taxed for the poor and rich. If ex post the government may strategically propose a reform other than full equalization in order to secure additional political support, then optimal capital taxes are instead progressive throughout the income distribution.
    JEL: D31 D82 E62 H21
    Date: 2014–04
  3. By: Alstadsæter, Annette; Jacob, Martin
    Abstract: This paper analyzes whether a dividend tax cut for owner-managers of closely held corporations encourages income shifting, income generation, or both. We use rich, micro data from Sweden for the period 2000 - 2011 comprising the entire Swedish population, as well as firmand individual-level data for all owner-managers in closely held corporations, partnerships, and self-employed. We find robust evidence of extensive income shifting across tax bases in response to the 2006 dividend tax cut. Relative to owners of unincorporated businesses, owner-managers of closely held corporations do not increase total income. Instead, they relabel earned income as dividend income. The income shifting effect is stronger for owner-managers with tax incentives and with easier access to income shifting through a high ownership share. --
    Keywords: income shifting,income generation,dividend taxes,closely held corporations,owner-managers
    JEL: H21 H25 H3
    Date: 2014
  4. By: Fochmann, Martin; Hemmerich, Kristina
    Abstract: We test the predictions of the theoretical literature initiated by the study of Domar and Musgrave (1944) with a laboratory experiment in which subjects have to decide on the composition of an asset portfolio. Our simple design enables us to distinguish between Real Tax Effects and Perception Effects when a proportional income tax, with and without a full loss offset provision, is introduced. Observed investment behavior is partially inconsistent with the theoretical predictions if we do not control for the Perception Effects. However, if we consider these effects, we find support for the theory. The isolated Perception Effects can explain the unexpected behavior observed in previous studies and has both scientific and political implications. --
    Keywords: Taxation,Domar-Musgrave Effect,Tax Perception,Risk Taking Behavior,Portfolio Choice,Behavioral Taxation
    JEL: C91 D14 H24
    Date: 2014
  5. By: Wenli Cheng; Dingsheng Zhang; CEMA
    Abstract: In this note, we introduce increasing returns to Bovenberg and Mooij’s (1994) model as generalised in Fullerton (1997) and use an example to show that (1) even with a distortionary labor tax, the optimal environmental levy is greater than the Pigouvian rate; (2) the difference between tax on the “dirty” good and the “clean” good is also greater than the Pigouvian tax; (3) under certain circumstances, the government can optimally use the environmental levy to both meet its revenue requirement and subsidize the “clean” goods with increasing returns.
    Keywords: environmental levies, distortionary taxation, increasing returns
    JEL: H23
    Date: 2014–04
  6. By: Wenli Cheng; Dingsheng Zhang; CEMA
    Abstract: This paper develops a set of three models to study the optimal tax-subsidy regime in an economy characterised by two deviations from the perfect competition model – negative externality from pollution by the “dirty” industry, and increasing returns in the “clean” industry. Its main conclusions are: (1) the optimal single pollution tax is higher than the Pigouvian level; (2) a combination of pollution tax and quantity subsidy increases consumer welfare at a lower level of pollution tax; (3) the optimal pollution tax can be further lowered and consumer welfare further increased if the quantity subsidy is supplemented by a lump-sum subsidy.
    Keywords: optimal pollution tax, clean subsidy, increasing returns, monopolistic competition
    JEL: H23
    Date: 2014–04
  7. By: Reayat, Nauman; Ahmad, Iftikhar; Khalil, Jehanzeb; Rahim, Tariq
    Abstract: Education and health sectors are known to have massive impact on the quality of human life. In this context, the health sector is discussed in this study to analyse the impact of fiscal decentralisation on basic health infrastructure in Pakistan. Provincial datasets (1980-2001) from three provinces were used for the analysis of provincial health indicators. It was learnt that the health sector remained neglected both at the national and provincial level. The provincial analysis suggests that federal transfers improved hospital beds availability in the economically active provinces, which were presumably more efficient. Provincial autonomy, on the other hand, failed to play a role in the improvement of the health sector. The analysis highlights the social implications of federal transfers. Differences in results for economically distinct provinces hint towards the efficiency aspect of resource utilisation. --
    Keywords: fiscal decentralisation,social implications,healthcare structure and financing
    JEL: H30 H39 I18 I19
    Date: 2014

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