nep-pub New Economics Papers
on Public Finance
Issue of 2014‒09‒05
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation: Mirrlees Meets Ramsey By Hitoshi Tsujiyama; Jonathan Heathcote
  2. Asymmetric tax competition with public inputs and imperfect labour markets By Johannes Pauser; Holger Gillet
  3. Income Taxation, Transfers and Labour Supply at the Extensive Margin By Gábor Kátay; Péter Benczúr; Áron Kiss; Olivér M. Rácz
  4. Taxing home ownership: distributional effects of including net imputed rent in taxable income By Panos Tsakloglou; Francesco Figari; Alari Paulus; Holly Sutherland; Gerlinde Verbist; Francesca Zantomio
  5. The Distribution of Income and the Public Finances By FitzGerald, John
  6. Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis By Nicola Fuchs-Schündeln; Alexander Bick
  7. Small business tax policy, informality, and tax evasion -- evidence from Georgia By Bruhn, Miriam; Loeprick, Jan

  1. By: Hitoshi Tsujiyama (Goethe University Frankfurt); Jonathan Heathcote (Federal Reserve Bank of Minneapolis)
    Abstract: This paper offers a quantitative exploration of optimal income tax design in the Mirrlees tradition, and asks how nearly simple parametric tax functions can decentralize constrained efficient allocations. The environment features both observable and unobservable components of idiosyncratic labor productivity, and both public and private insurance. Given a social welfare function that rationalizes the amount of redistribution built into the current US tax code, we find that potential welfare gains from tax reform are very small. We also find that it is more important that the tax system features marginal tax rates that increase with income than that it feature universal lump-sum transfers.
    Date: 2014
  2. By: Johannes Pauser; Holger Gillet
    Abstract: - The paper examines efficiency in public input provision in two large jurisdictions with imperfect labour markets. - It analyses how equilibrium capital tax rates and public input provision levels differ between asymmetric jurisdictions that can strategically influence the interest rate on the common capital market in an international tax competition setting. - The corresponding lack in research and the motivation of the paper is explained in section 1 of the paper. - We use an international tax competition setting with public inputs (productive public goods) where regions are asymmetric (non-price-taking environment) and labour markets are distorted. - Decentralised jurisdictions maximise welfare of employed and unemployed individuals (benevolent governments). - Analysis of the decentralised Nash-equilibrium (Cournot-Nash), where policy makers select tax and expenditure instruments strategically to maximise the welfare in their region (for various tax games). - Comparative statics analysis of the reaction of capital and labour to a change in policy instruments: Public inputs, source-based capital taxes, head taxes. - Derivation of equilibrium capital tax rates, labour tax rates, and public input provision levels for different tax games. - The non-cooperative equilibrium is inefficient also when governments have capital and head taxes at disposal. - As a source of both the distortion in the capital allocation between jurisdictions and the inefficiency in public input provision, we identify the governments' incentives to decrease unemployment, as well as fiscal and pecuniary externalities. - Efficiency in public input provision can be restored, if the set of fiscal instruments available for regional policy makers is extended by a labour tax.
    Keywords: Global (International), Tax policy, Labor market issues
    Date: 2014–07–03
  3. By: Gábor Kátay; Péter Benczúr; Áron Kiss; Olivér M. Rácz
    Abstract: This paper presents a unified parametric approach to estimate the impact of taxes and transfers on the participation decision. We extend existing structural form methodologies by considering the effect of both taxes and transfers. In our framework, participation probabilities are determined by the comparison of disposable income in and out of the labour force, consisting of the (often non-observed) amount of transfers and non-labour income an individual gets if not working and the gains to work (GTW; change in disposable income if accepting a job offer, the sum of net wages and lost transfers). Identification is achieved by utilizing a multitude of tax and transfer reforms. Unlike in the existing literature, our results allow a general assessment of the efficiency and effectiveness of government interventions into the labour market, and more importantly, a micro-based prediction of the impact of tax and welfare reforms.The underlying theory leads to a structural probit equation which relates participation probabilities to gains to work from a full time job, the total amount of non-labour income (including the hypothetical amount of transfers one gets or would get at zero hours worked) and other individual characteristics. The unobserved hypothetical amount of transfers are backed up using individual characteristics and the welfare system’s details for every given year. The estimation process follows the often used three step procedure, as e.g. in Kimmel and Kniesner (1998). The key element of the identification is the careful choice of labour demand shifters, i.e. the variables which have no (or negligible) impact on labour supply directly, but strongly impact the wage and hence impacts activity indirectly. We argue that county dummies and (once we control for individuals’ lifecycle position with a large set of dummy variables) individuals’ age are such variables.Using data from the Hungarian Household Budget Survey, we find that a single equation can already explain a large heterogeneity of individual responsiveness to taxes and transfers: there are large differences among subgroups, driven partly by a composition effect, and partly by a different share of lost transfers in the GTW. The most responsive subgroups are low-skilled, (married) women at child-bearing age and elders, while prime-age higher educated individuals are practically unresponsive to tax and transfer changes at the extensive margin. As an illustration, we fed the main changes of the Hungarian personal income tax and transfer system of 2012 into this framework. We find that the complete elimination of the employee tax credit scheme, a reduction in the tax rate (from 20,3% to 16%) below the average monthly income and a 1 percentage point increase in the social contribution rate overall lead to a decrease in aggregate activity by about one percent.
    Keywords: Hungary, Tax policy, Labor market issues
    Date: 2014–07–03
  4. By: Panos Tsakloglou; Francesco Figari; Alari Paulus; Holly Sutherland; Gerlinde Verbist; Francesca Zantomio
    Abstract: Imputed rental income of homeowners is tax exempt in most countries, despite the long-standing arguments recommending its inclusion in the tax base, on both equity and efficiency grounds. The current fiscal crisis revived interest towards this form of taxation. The paper investigates the fiscal and distributional consequences of including homeowners’ imputed rent, net of mortgage interest and maintenance costs, in taxable income as any cash income source that extends consumption opportunities. Three scenarios are analysed in six European countries: in the first imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In two further revenue-neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, either through a proportional rebate or a lump-sum tax credit. Results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality-increasing side-effects. See above See above
    Keywords: See above, Impact and scenario analysis, Microsimulation models
    Date: 2014–07–03
  5. By: FitzGerald, John
    Date: 2014–08
  6. By: Nicola Fuchs-Schündeln (Goethe University Frankfurt /Main); Alexander Bick (Arizona State University)
    Abstract: We document contemporaneous differences in the aggregate labor supply of married couples across 18 OECD countries along the extensive and the intensive margin. We quantify the contribution of international differences in non-linear labor income taxes and consumption taxes, as well as gender wage gaps and educational premia, to the international differences in the data. Our model replicates the comparatively small cross-country differences of married men's hours worked very well. Moreover, taxes and wages account for a large part of the observed large differences in married women's labor supply between the US and Europe. The non-linearity of labor income taxes leads to substantially different effects of taxation on married men and women. We find that going to a system of strictly separate taxation would increase labor supply of married women by more than 100 hours annually in a third of our sample countries.
    Date: 2014
  7. By: Bruhn, Miriam; Loeprick, Jan
    Abstract: Using a panel of administrative data and regression discontinuity analysis, this paper examines how the introduction of preferential tax regimes for Georgian micro and small businesses in 2010 affects formal firm creation and tax compliance. The results show that the new tax regime for micro businesses increased the number of newly registered formal firms by 18-30 percent below the eligibility threshold during the first year of the reform, but not in subsequent years. The analysis does not find an effect of the new tax regime for small businesses on formal firm creation in any year. Policy makers are often concerned about abuse risks stemming from differentiated tax treatment of micro and small businesses. The analysis in this paper reveals reduced tax compliance in 2010 around the micro business eligibility threshold, but does not find significant evidence of reduced compliance by Georgian firms in later years. The results also do not show any significant evidence of strategic sorting around the regime eligibility thresholds.
    Keywords: Debt Markets,Taxation&Subsidies,Microfinance,Emerging Markets,Access to Finance
    Date: 2014–08–01

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