nep-pub New Economics Papers
on Public Finance
Issue of 2014‒09‒29
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The distributional effects of personal income tax expenditure By Avram, Silvia
  2. Income Taxation, Transfers and Labour Supply at the Extensive Margin By Benczúr, P.; Kátay, G.; Kiss, A.; Rácz , O.
  3. Are Local Tax Rates Strategic Complements or Strategic Substitutes? By Raphael Parchet; Massimiliano Vatiero
  4. Dynamic Nonlinear Income Taxation with Quasi-Hyperbolic Discounting and No Commitment By Jang-Ting Guo; Alan Krause
  5. Stable and sustainable global tax coordination with Leviathan governments By Thomas Eichner; Rüdiger Pethig
  6. Taxation and the Sustainability of Collusion: Ad Valorem versus Specific Taxes By Azacis, Helmuts; Collie, David R.
  7. Tax Policy in a Simple General Oligopoly Equilibrium Model with Pollution Permits By Bertrand Crettez; Pierre-André Jouvet; Ludovic A. Julien

  1. By: Avram, Silvia
    Abstract: Using EUROMOD, this study investigates the size and distributional effects of tax allowances and tax credits in 6 European countries. It also examines whether instrument design matters in shaping the redistributive effect, paying attention to both categorical and explicit income targeting .With few exceptions the impact of tax allowances and tax credits on inequality is small. Tax credits are generally more progressive than tax allowances. The design of the allowances/credits appears to be less important than the characteristics of the population they are targeting and/or other features of the income tax system in determining the redistributive effect. Consequently, tax concessions appear ill-suited to target resources towards households in the bottom part of the income distribution.
    Date: 2014–07–15
  2. By: Benczúr, P.; Kátay, G.; Kiss, A.; Rácz , O.
    Abstract: This paper estimates the effect of income taxation and transfers on labour supply at the extensive margin, i.e., the labour force participation. We extend existing structural form methodologies by considering the effect of both taxes and transfers. Non-labour income contains the (hypothetical) transfer amount someone gets when out of work, while the wage is replaced by the difference between net wages and the amount of lost transfers due to taking up a job (gains to work). To incorporate these components of the budget set, we employ a detailed tax-benefit model. Using data from the Hungarian Household Budget Survey (HKF), we find that participation probabilities are strongly influenced by transfers and the gains to work, particularly for low-skill groups and the elderly. Moreover, the same change in the net wage leads to a much larger change in the gains to work for low earners, making them even more responsive to wages and taxation. Overall, we find that a single equation can capture a large heterogeneity of individual responsiveness to taxes and transfers. Our parametric estimates can be readily utilized in welfare evaluations, or microsimulation analyses of tax and transfer reforms.
    Keywords: participation decision, taxation, transfers.
    JEL: H24 H31 H53 I38 J21
    Date: 2014
  3. By: Raphael Parchet (Department of Economics, University of Siena, Italy); Massimiliano Vatiero (IRE and IdEP, Università della Svizzera italiana, Lugano, Switzerland)
    Abstract: The identification of strategic interactions among local governments is typically plagued by endogeneity problems. This paper proposes an identification strategy that makes use of a multi-tier federal system. State-level fiscal reforms provide an arguably exogenous source of variation in tax rates of local jurisdictions. Moreover, state borders spatially bound the effects of state-level fiscal reforms across areas that are otherwise highly integrated. Using the fact that local jurisdictions located close to a state border have some neighbors in another state, I propose to instrument the (average) tax rate of neighbor jurisdictions with the state-level tax rate of the neighboring state. I use this instrument to identify strategic personal income tax setting by local jurisdictions in Switzerland. In contrast to most of the existing empirical literature and to all results based on standard instruments, I find that tax rates are strategic substitutes in most cases. Tax rates are found to be strategic complements only in the context of large tax cuts.
    Keywords: tax competition, fiscal federalism
    JEL: H24 H71 H77
    Date: 2014
  4. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Alan Krause (University of York, UK)
    Abstract: This paper examines a dynamic model of nonlinear income taxation in which the government cannot commit to its future tax policy, and individuals are quasi-hyperbolic discounters who cannot commit to future consumption plans. The government has both paternalistic and redistributive objectives, and therefore uses its taxation powers to maximize a utilitarian social welfare function that reflects individuals' true (long-run) preferences. Under first-best taxation, quasi-hyperbolic discounting exerts no effect on the level of social welfare attainable. Under second-best taxation, quasi-hyperbolic discounting increases (resp. decreases) the level of social welfare attainable when separating (resp. pooling) taxation is optimal. In stark contrast to previous studies, this result implies that some individuals can actually be better-off in the long run as a result of their short-run impatience.
    Keywords: Dynamic taxation, Quasi-Hyperbolic Discounting, Commitment.
    JEL: D91 H21 H24
    Date: 2014–09
  5. By: Thomas Eichner; Rüdiger Pethig
    Abstract: Itaya et al. (2014) study the conditions for sustainability and stability of capital tax coordination in a repeated game model with tax-revenue maximizing governments. One of their major results is that the grand tax coalition is never stable and sustainable. The purpose of this note is to prove that there are conditions under which the grand tax coalition is stable and sustainable in Itaya et al.’s model.
    Keywords: global tax coordination, repeated game, sustainability, stability
    JEL: H71 H77
    Date: 2014
  6. By: Azacis, Helmuts (Cardiff Business School); Collie, David R. (Cardiff Business School)
    Abstract: Assuming constant marginal cost, it is shown that a switch from specific to ad valorem taxation has no effect on the critical discount factor required to sustain collusion. This result is shown to hold for Cournot oligopoly as well as for Bertrand oligopoly when collusion is sustained with Nash-reversion strategies or optimal-punishment strategies. In a Cournot duopoly model with linear demand and quadratic costs, it is shown that the critical discount factor is lower with an ad valorem tax than with a specific tax. However, in contrast to Colombo and Labrecciosa (2013), it is shown that revenue is always higher with an ad valorem tax than with a specific tax.
    Keywords: Taxes; Imperfect Competition; Oligopoly; Cartel; Supergame
    JEL: H21 H22 L13 L41 C72 C73
    Date: 2014–09
  7. By: Bertrand Crettez; Pierre-André Jouvet; Ludovic A. Julien
    Abstract: We introduce a pollution permits market in a general oligopoly equilibrium model. Specifically, we consider a two-commodity economy with one productive sector. The first commodity is inelastically supplied by a set of competitive traders. The second commodity is produced by a set of strategic traders, using the first commodity as an input. The production of the second commodity is a polluting activity. Introducing a competitive emissions permits market solves the pollution control problem but is not sufficient to eliminate market distortions and to reach a Pareto optimal allocation. We study the conditions under which a subsidy to the strategic agents, financed by a tax on the competitive agents, is welfare increasing.
    Keywords: oligopoly equilibrium, taxation policy, pollution.
    JEL: D43 D51 H2
    Date: 2014

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