nep-pub New Economics Papers
on Public Finance
Issue of 2014‒07‒13
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation, Inequality and Top Incomes By Andrienko, Yuri; Apps, Patricia; Rees, Ray
  2. Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity By Lehmann, Etienne; Lucifora, Claudio; Moriconi, Simone; Van der Linden, Bruno
  3. Optimal taxation and debt with uninsurable risks to human capital accumulation By Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima
  4. Taxation and Corporate Risk-Taking By Langenmayr, Dominika; Lester, Rebecca
  5. Efficient Labor and Capital Income Taxation over the Life Cycle By Findeisen, Sebastian; Sachs, Dominik
  6. Do Capital Tax Incentives Attract New Businesses? Evidence across Industries from the New Markets Tax Credit By Kaitlyn Harger; Amanda Ross
  7. Managing Income Tax Compliance through Self-Assessment By Andrew Okello
  8. Education Policies and Taxation without Commitment By Findeisen, Sebastian; Sachs, Dominik
  9. Wealth Transfer Taxation: An Empirical Investigation By Paola Profeta; Simona Scabrosetti; Stanley L. Winer
  10. Welfare Effects of Distortionary Tax Incentives under Preference Heterogeneity: An Application to Employer-provided Electric Cars By Alexandros Dimitropoulos; Jos N. van Ommeren; Paul Koster; and Piet Rietveld†
  11. Tax Buoyancy in OECD Countries By Vincent Belinga; Dora Benedek; Ruud A. de Mooij; John Norregaard
  12. Tax Reforms in the EU Member States Since the Turn of the New Century: Selected Observations By Luigi Bernardi
  13. Reforming Capital Taxation in Italy By Luc Eyraud
  14. Reforming Tax Expenditures in Italy: What, Why, and How? By Justin Tyson

  1. By: Andrienko, Yuri (University of Sydney); Apps, Patricia (University of Sydney); Rees, Ray (University of Munich)
    Abstract: In a number of high-income countries over the past few decades there has been a large growth in income inequality and at the same time a shift in the burden of taxation from the top to the middle of the income distribution. This paper applies the theory of optimal piecewise linear taxation to the issue of the taxation of top incomes. Our results suggest that an appropriate response to rising inequality is a shift towards a more progressive multi-bracket income tax system, with a more differentiated structure of rates in the top percentiles.
    Keywords: optimal taxation, income distribution, top incomes, inequality
    JEL: H21 H24 D31 D63
    Date: 2014–06
  2. By: Lehmann, Etienne (CRED, Université Panthéon Assas Paris 2); Lucifora, Claudio (Università Cattolica del Sacro Cuore); Moriconi, Simone (Università Cattolica del Sacro Cuore); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: In this paper we argue that, for a given overall level of labour income taxation, a more progressive tax schedule increases employment. From a theoretical point of view, higher progressivity increases overall employment through a wage moderating effect and also because employment of low-paid workers is more elastic to wages. We test these theoretical predictions on a panel of 21 OECD countries over 1998-2008. Controlling for the burden of taxation at the average wage, our estimates suggest that a more progressive tax schedule reduces the unemployment rate and increases the employment rate. These findings are confirmed when we account for the potential endogeneity of both average taxation and progressivity. Overall, our results suggest that policy-makers should not only focus on the detrimental effects of tax progressivity on in-work effort, but also consider the employment-enhancing effects.
    Keywords: wage moderation, employment, taxation
    JEL: E24 H22 J68
    Date: 2014–06
  3. By: Piero Gottardi (European University); Atsushi Kajii (Kyoto University); Tomoyuki Nakajima (Kyoto University and CIGS)
    Abstract: We consider an economy where individuals face uninsurable risks to their human capital accumulation, and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that in the presence of such risks it is beneficial to tax both labor and capital income and to have positive government debt.
    Keywords: incomplete markets; Ramsey equilibrium; optimal taxation; optimal public debt.
    JEL: D52 D60 D90 E20 E62 H21 O40
    Date: 2014–06
  4. By: Langenmayr, Dominika; Lester, Rebecca
    Abstract: We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery.
    Keywords: Corporate taxation; firm risk-taking; net operating losses
    JEL: H25 H32 G32
    Date: 2014–06–20
  5. By: Findeisen, Sebastian; Sachs, Dominik
    Abstract: This paper analyzes Pareto optimal taxation of labor and capital income in a lifecycle framework with private information and idiosyncratic risk. We focus on historyindependent tax systems. We thereby complement the Mirrlees taxation literature, which has so far typically either characterized optimal history-dependent distortions or focused on static environments. For labor income taxes, we provide a novel decomposition of tax formulas into a redistribution and an insurance component. The latter is independent of redistributive motives and is determined by the degree of income risk and risk aversion. We show that the optimal linear capital tax rate is non-zero and derive a simple formula, which trades off redistributive and insurance benefits against the efficiency loss from savings distortions. Our quantitative results show that the insurance component contributes significantly to optimal labor tax rates. Optimal capital taxes are significant and yield sizable welfare gains.
    Keywords: Optimal Dynamic Taxation , Capital Taxation , First-Order Approach
    JEL: H21 H23
    Date: 2014
  6. By: Kaitlyn Harger (West Virginia University, College of Business and Economics); Amanda Ross (West Virginia University, College of Business and Economics)
    Abstract: All levels of government pursue policies to attract new businesses with the hope that these enterprises will create local economic growth. In this paper, we use the New Markets Tax Credit (NMTC) to determine the effect of a capital tax credit on where firms in different types of industries locate. When estimating the impact of the NMTC on business location, there are likely to be unobservable local characteristics that are correlated with where businesses choose to open that would cause OLS estimates to be biased. To control for the endogenous selection, we use a plausibly exogenous eligibility cutoff and compare census tracts that are just eligible for the tax credit to those that are just ineligible. Using data from the Dun and Bradstreet MarketPlace Files, we find that in Metropolitan Statistical Areas, the NMTC incentivized new businesses to locate in tracts that were eligible for the tax credit in 2002 and 2004. However, we find that in 2006 the tax credit deterred new establishments. When we stratify the 2006 sample by industry, we find that this capital tax credit attracted more capital intensive industries, such as manufacturing, while deterring more labor intensive industries, such as services. Our results are important to policy makers, as we find that the type of tax credit offered causes a sorting of different industries across locations.
    Date: 2014–06
  7. By: Andrew Okello
    Abstract: Modern tax administrations seek to optimize tax collections while minimizing administration costs and taxpayer compliance costs. Experience shows that voluntary compliance is best achieved through a system of self-assessment. Many tax administrations have introduced self-assessment principles in the income tax law but the legal authority is not being consistently applied. They continue to rely heavily on “desk†auditing a majority of tax returns, while risk management practices remain largely underdeveloped and/or underutilized. There is also plenty of opportunity in many countries to enhance the design and delivery of client-focused taxpayer service programs, and better engage with the private sector and other stakeholders.
    Keywords: Income taxes;Tax assessments;Tax collection;Tax legislation;Tax policy;Tax administration;Cross country analysis;income tax, tax compliance, self-assessment, risk management, Sub-Saharan Africa
    Date: 2014–03–11
  8. By: Findeisen, Sebastian; Sachs, Dominik
    Abstract: We study the implications of limited commitment on education and tax policies chosen by benevolent governments. Individual wages are determined by both innate abilities and education levels. Consistent with real world practices, the government can decide to subsidize different levels of education at different rates. Deviations from full commitment tend to make education policies more progressive, increasing the education subsidy for initially low skilled agents and decreasing it for initially high skilled agents. We provide suggestive cross-country correlations for this mechanism.
    Keywords: Education Policies , Time-Inconsistency , Taxation , Inequality
    JEL: H21 H23 I21
    Date: 2014
  9. By: Paola Profeta (Università Bocconi, Milano, Italy); Simona Scabrosetti (Università di Pavia, Italy); Stanley L. Winer (Carleton University, Canada)
    Abstract: We present an empirical model of wealth transfer taxation in the revenue systems of the G7 countries - Canada, France, Germany, Italy, Japan, the U. K. and the U. S. - over the period from 1965 to 2009. Our model emphasizes the influences of population aging and of the stock of household wealth in an explanation of the past and likely future of this tax source. Simulations with the model using U.N.demographic projections and projections of household wealth suggest that even in France and Germany where reliance on wealth transfer taxation has been increasing for part of the period studied, wealth transfer taxes can be expected to wither away as population aging deepens over the next three decades. Our results indicate that recent tax designs that rely upon the taxation of wealth transfers to preserve equity in the face of declining taxation of capital incomes may be, in this respect, politically infeasible for the foreseeable future. We conclude by using the case of wealth tra nsfer taxation to raise the general ques tion of the extent to which the consiste ncy of a proposed reform with expected p olitical equilibria ought to play a role  in the design of a normative policy blu eprint.
    Keywords: Revenue structure, stock of household wealth, population aging, solidarity index, fixed effects estimation
    JEL: H20 P16 P35 P50
    Date: 2014–03
  10. By: Alexandros Dimitropoulos; Jos N. van Ommeren; Paul Koster; and Piet Rietveld† (VU University Amsterdam)
    Abstract: This paper presents an approach for the estimation of welfare effects of tax policy changes under heterogeneity in consumer preferences. The approach is applied to evaluate the welfare effects of current tax advantages for electric vehicles supplied as fringe benefits by employers. Drawing on stated preferences of Dutch company car drivers, we assess the short-run welfare effects of changes in the taxation of the private use of these vehicles. We find that the welfare gain of a marginal increase in the taxation of electric company cars is substantial and even outweighs the marginal tax revenue raised.
    Keywords: Social welfare, Latent class, Stated preference, Company car, Electric vehicle, Plug-in hybrid
    JEL: D12 H23 H24 H31 O33 Q58 R41
    Date: 2014–06–02
  11. By: Vincent Belinga; Dora Benedek; Ruud A. de Mooij; John Norregaard
    Abstract: By how much will faster economic growth boost government revenue? This paper estimates short- and long-run tax buoyancy in OECD countries between 1965 and 2012. We find that, for aggregate tax revenues, short-run tax buoyancy does not significantly differ from one in the majority of countries; yet, it has increased since the late 1980s so that tax systems have generally become better automatic stabilizers. Long-run buoyancy exceeds one in about half of the OECD countries, implying that GDP growth has helped improve structural fiscal deficit ratios. Corporate taxes are by far the most buoyant, while excises and property taxes are the least buoyant. For personal income taxes and social contributions, short- and long-run buoyancies have declined since the late 1980s and have, on average, become lower than one.
    Keywords: Tax revenue;OECD;Personal income taxes;Corporate taxes;Property taxes;Tax systems;Automatic stabilizers;Economic growth;Econometric models;Regression analysis;Tax buoyancy; Automatic stabilizers; Error Correction Model; OECD.
    Date: 2014–06–19
  12. By: Luigi Bernardi (Università di Pavia, Italy)
    Abstract: The aim of this paper is to discuss certain critical aspects of the tax reform process that has been taking place in the EU MS since the beginning of the new century. Two separate periods may be identified here. The first -from 2000 to 2011- witnessed very few tax reforms: according to the EU Commission itself, tax reforms were episodic, sparse and generally of a limited nature, To check this hypothesis, the present paper analyzes tax trends during the period 2000-2011, both at aggregate EU level and by disaggregating such trends into those pertaining to each EU MS. In the wake of the great economic crisis, there has been a broader process of tax reform in almost all EU Member Countries, albeit characterized by a reluctance to accept the tax reforms that the European Commission has been recommending to certain specific countries for a number of years now. The final, concluding issue dealt with briefly in this paper, is that of the various obstacles to tax reforms, starting from a recent OECD study of the matter.
    Keywords: Taxation policy, Tax reforms, EU Member States
    JEL: H2 H20 H24 H25
    Date: 2014–06
  13. By: Luc Eyraud
    Abstract: This paper reviews capital taxation issues in Italy based on a comprehensive definition encompassing taxes on income, transactions, and ownership. It discusses options to enhance the neutrality of the capital income tax system, followed by a detailed analysis of the property tax, the inheritance tax, and various transaction taxes. The paper also examines the case for replacing the set of existing taxes on financial and real assets with a single net wealth tax.
    Keywords: Taxation;Italy;Capital;Income taxes;Income distribution;Tax reforms;Tax systems;property tax, capital taxes, property taxes, taxes on capital, capital stock, tax treatment, income tax system, property taxation, tax measures, tax structure, inheritance tax, real estate tax, tax liability, taxation issues, tax purposes, tax exemptions, direct taxes, tax administration, tax collection, capital income taxation, tax deduction, income tax purposes, international tax, wealth taxes, tax on capital, taxes on income, taxes on property, optimal taxation, benefit tax, tax competition, taxation of wealth, corporate income tax, tax design, personal income tax, tax payment, tax arrangements, tax administrations, interest payments, property tax rates, marginal tax rate, progressive personal income tax, tax coordination
    Date: 2014–01–16
  14. By: Justin Tyson
    Abstract: The IMF has advised country authorities to roll back tax expenditures as a way to support fiscal consolidation efforts—urging them to evaluate tax expenditures according to clear criteria, and assessing their impact on public finances, economic efficiency, equity, and administrative and compliance costs. This paper analyzes tax expenditures in Italy, considering the extent to which tax expenditures can be considered part of an optimal tax system and possible reforms.
    Keywords: Taxes;Italy;Government expenditures;Tax systems;Tax reforms;optimal taxation, efficiency, equity, budget process, tax system, excise tax, personal income tax, double taxation, tax exemption, excise taxes, expenditure programs, tax design, corporate income tax, vat exempt, expenditure “ policies, tax deduction, income taxes, public spending, consumption taxes, tax instrument, tax liability, vat system, tax breaks, expenditure control, tax treatment, potential taxpayers, value-added taxes, revenue collection, tax advantages, tax on capital, progressive income tax system, progressive tax, tax reform, tax exemptions, expenditure reform, government expenditure
    Date: 2014–01–16

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