nep-pub New Economics Papers
on Public Finance
Issue of 2014‒08‒20
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Is the Flat Tax Optimal under Income Risk? By Dominique Henriet; Patrick Pintus; Alain Trannoy
  2. Atkinson and Stiglitz theorem in the presence of a household production sector By Cremer, Helmuth; Gahvari, Firouz
  3. Tax Reform for Growth, Equity, and Revenue By Brown, Samuel; Gale, William G.
  4. Corporate income tax, legal form of organization, and employment By Chen, Daphne; Qi, Shi; Schlagenhauf, Don E.
  5. Tax Competition and Tax Coordination in the European Union: A Survey By Keuschnigg, Christian; Loretz, Simon; Winner, Hannes

  1. By: Dominique Henriet (École Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHES); Patrick Pintus (Aix-Marseille Universit´e (Aix-Marseille School of Economics), CNRS & EHESS); Alain Trannoy (Aix-Marseille Universite (Aix-Marseille School of Economics) CNRS EHESS)
    Abstract: We derive testable conditions ensuring that the income tax is optimal when agents are ex-ante identical but face idiosyncratic income risk. The optimal tax depends positively on both absolute risk aversion and risk variance and negatively on labor supply elasticity and absolute prudence. The comparison with the formula of the optimal non-linear income tax provides the restrictions on both the preferences and the income distribution conditional on effort ensuring that the optimal tax is indeed linear. In general it requires that the ratio of absolute prudence to absolute risk aversion be no less than two; if the income density has a linear likelihood ratio, it requires a (generalized) logarithmic consumption utility. Under HARA utility and linear or logarithmic likelihood ratios, explicit solutions for the optimal non-linear income tax are derived.
    Keywords: Optimal Income Taxation, Income Risk, Linear and Nonlinear Income Tax.
    JEL: H21 H24
    Date: 2014–05–30
  2. By: Cremer, Helmuth; Gahvari, Firouz
    Abstract: We show that the celebrated Atkinson and Stiglitz (1976) result on the uniformity of the commodity tax rates when preferences are weakly separable between goods and leisure does not hold when (at least) one of the goods is produced within the household. The result is restored if preferences are weakly separable in market goods on the one hand, and leisure and household goods on the other.
    Keywords: Atkinson and Stiglitz theorem, household production, weak-separability.
    JEL: H2 H5
    Date: 2014–07
  3. By: Brown, Samuel; Gale, William G.
    Abstract: This paper examines the fiscal outlook and tax reform options in the United States. The major conclusions include: the United States faces a substantial fiscal shortfall in the medium- and long-term; both spending cuts and tax increases should contribute to the solution; tax increases need not do significant harm to economic growth; and there are sensible ways to both reform tax structure and raise revenues, including tax expenditure reform, the creation of a value-added tax, the creation of a carbon tax, or an increase in the gasoline tax.
    Keywords: tax reform, fiscal policy, fiscal shortfall
    JEL: H20
    Date: 2012–11–30
  4. By: Chen, Daphne (Florida State University); Qi, Shi (Florida State University); Schlagenhauf, Don E. (Florida State University)
    Abstract: We adopt a dynamic stochastic occupational choice model with heterogeneous agents and evaluate the impact of a potential reduction in the corporate income tax on employment. We show that a reduction in corporate income tax leads to moderate job creation. In the extreme case, the elimination of the corporate income tax would reduce the non-employed population by 5.4 percent. In the model, a reduction in the corporate income tax creates jobs through two channels, one from new entry firms and one from existing firms changing their form of legal organization. In particular, the latter accounts for 85.7 percent of the new jobs created.
    Keywords: Corporate Income Taxes; Employment; Firm heterogeneity; Entrepreneurs
    JEL: C54 E10 E69 H25 H32
    Date: 2014–04–03
  5. By: Keuschnigg, Christian (Institute for Advanced Studies, Vienna, Austria); Loretz, Simon (Institute for Advanced Studies, Vienna, Austria); Winner, Hannes (University of Salzburg)
    Abstract: This survey summarizes the state and development of European tax policy, in particular discussing the harmonization progress in direct as well as indirect taxes. Based on an over-view over the theoretical and empirical literature on tax competition, we further ask whether increased tax coordination is necessary to prevent a race to the bottom. We show that theoretical predictions on the outcome of tax competition are ambiguous, and the empirical evidence in this regard is inconclusive as well. This, in turn, gives rise to an only limited scope of stronger tax harmonization.
    Keywords: Tax Competition; tax coordination; European economic integration
    JEL: H77 H87
    Date: 2014–08–04

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