nep-pub New Economics Papers
on Public Finance
Issue of 2014‒11‒17
seven papers chosen by

  1. Tax Power and Economics By Estrada, Fernando; González, Jorge Iván
  2. When a Price is Enough: Implementation in Optimal Tax Design By Renes, Sander; Zoutman, Floris T.
  3. Myths and Misconceptions in the Tax Mix Debate By Smyth, Russell
  4. Tax Evasion, Tax Policies and the Role Played by Financial Markets. By Mitra, Shalini
  5. Corruption, Tax Evasion and Social Values By Litina, Anastasia; Palivos, Theodore
  6. 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; Piet Rietveld†
  7. Tax Revenue and Economic Growth in Ghana: A Cointegration Approach By Takumah, Wisdom

  1. By: Estrada, Fernando; González, Jorge Iván
    Abstract: The article is divided into two parts. The first describes Hayek's critique of the progressive tax system since its conception of social order and fiscal rationality. Hayek thinks about a key principle in liberal democracies: majority rule. And stretching comments to the influence of morality in taxation decisions. The second is aimed at analyzing the reception of Hayek in constitutional economics Brennan and Buchanan. However, in the interpretation of tax policy has decisively if governments reflect a tyrant or benevolent Leviathan State. The Fiscal Constitution must be accompanied by a monetary constitution. Both constitutional forms are related and prevent leviathánico power of governments, especially when they are short stay. Although, for the authors, the Fiscal Constitution has important implications for monetary constitution.
    Keywords: Power Tax, Hayek, Buchanan, Brennan, Progressive Tax.
    JEL: B13 B15 B25 B41 E42 E62 E64 H3
    Date: 2014
  2. By: Renes, Sander (University of Mannheim); Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: This paper studies the design of tax systems that implement a planner's secondbest allocation in a market economy. An example shows that the widely used Mirrleesian (1976) tax system cannot implement all incentive-compatible allocations. Hammond's (1979) "principle of taxation" proves that any incentive-compatible allocation can be implemented through at least one tax system. However, this tax system is often undesirable since it severely restricts the choice space of agents in the economy. In this paper we derive necessary and sufficient conditions to verify whether a given tax system can implement a given incentive-compatible allocation. We show that when an incentive-compatible allocation is on the Pareto frontier, and/or surjective onto the choice space, a tax system that equates the marginal tax rates to the optimal wedges can implement the second best, without restricting the choice space of the agents. It follows that the Mirrleesian tax system can successfully implement the second best in the identified classes. Since the secondbest allocation of welfarist planners is always on the Pareto frontier, our results (ex post) validate most tax systems proposed in the literature. Outside of the identified classes, the planner may need to restrict the choice space of agents to implement its second best in the market. This sheds new light on rules, quotas and prohibitions used in real-world tax and benefit systems.
    Keywords: Optimal non-linear taxation; redistribution; tax system; market implementation; price mechanism; private information
    JEL: D82 H21 H22 H24
    Date: 2014–09–24
  3. By: Smyth, Russell
    Abstract: Recently, the Australian states supported an increase in the Goods and Services Tax (GST) as a means to increase revenue available to them. This would entail further tax mix reform in favour of taxing consumption. This paper considers the merits of tax reform, drawing on the earlier Australian debates on the topic from the 1990s and the associated academic literature. While it is argued that the benefits of tax mix reform are often overstated, if increasing the GST rate is marketed as part of a package to broaden the income tax base, it offers a vehicle to bring about tax reform.
    Keywords: Tax mix switch, Broad-based consumption tax, GST
    JEL: H2 H22
    Date: 2014–10–10
  4. By: Mitra, Shalini
    Abstract: In a dynamic general equilibrium model with credit constraints and heterogeneous firms I show that both tax policies and domestic financial market development (FD) can lead to lower informality. Tax policies are more effective in reducing informality since they directly increase the cost of informal production but they have limits, trade-offs and costly general equilibrium effects. FD lowers formal borrowing costs which increases the marginal benefit of hiring in the formal sector. Wage rate increases driving down informal production. Formal output, employment, tax revenue and welfare all increase with FD and counter or offset the negative effects of tax policies.
    Keywords: Informal sector, tax policies, heterogenous firms, financial frictions
    JEL: D5 D52 H26 O17
    Date: 2014–09
  5. By: Litina, Anastasia; Palivos, Theodore
    Abstract: We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they peculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that corruption may corrupt. Furthermore, we find that standard deterrence policies cannot eliminate multiplicity. Instead, policies that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibrium.
    Keywords: Corruption, Tax Evasion, Multiple Equilibria, Stigma
    JEL: D73 E62 H26
    Date: 2014–09–09
  6. By: Alexandros Dimitropoulos; Jos N. van Ommeren; Paul Koster; 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
  7. By: Takumah, Wisdom
    Abstract: This study examines the effect of tax revenue on economic growth in Ghana using quarterly data for the period 1986 to 2010 within the VAR framework. The study found that there exist both short run and long run relationship between economic growth and tax revenue. The result indicated a unidirectional causality between tax revenue and economic growth and it flows from tax revenue to economic growth. The result suggests that tax revenue exerted a positive and statistically significant effect on economic growth both in the long-run and short-run implying that tax revenue enhances economic growth in Ghana. The study recommended that the tax base need to be widened and the tax rates reduced in order to generate more revenue. It was recommended that the government should improve tax collection measures in order to generate more revenue so as to increase economic growth in Ghana.
    Keywords: Tax revenue, Economic Growth, Cointegration, Causality, Ghana
    JEL: C3 E6 H2
    Date: 2014–09–12

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