nep-pub New Economics Papers
on Public Finance
Issue of 2014‒12‒13
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Raising Revenue by Limiting Tax Expenditures By Martin S. Feldstein
  2. High marginal tax rates on the top 1%? By Kindermann, Fabian; Krueger, Dirk
  3. Tax Morale By Luttmer, Erzo F.P.; Singhal, Monica
  4. Self-serving bias and tax morale By Blaufus, Kay; Braune, Matthias; Hundsdoerfer, Jochen; Jacob, Martin
  5. The Effects of Labor Migration on Optimal Taxation: An International Tax Competition Analysis By Soojin Kim
  6. Can tax policy co-cause the crisis? By Szarowska, Irena
  7. The Initial Incidence of a Carbon Tax across US States By Williams III, Roberton C.; Gordon, Hal; Burtraw, Dallas; Carbone, Jared C.; Morgenstern, Richard D.
  8. Do Tax Credits Affect R&D Expenditures by Small Firms? Evidence from Canada By Ajay Agrawal; Carlos Rosell; Timothy S. Simcoe
  9. Private Access Fees and Congestion Is There a Role for Government After All? By Salant, Stephen; Seegert, Nathan

  1. By: Martin S. Feldstein
    Abstract: Limiting tax expenditures can raise revenue without increasing marginal tax rates. Such a policy is equivalent to reducing government spending now done as subsidies through the tax code for a wide range of household spending and income. This paper explores one way of limiting tax expenditures: a cap on the total reduction in tax liabilities that each individual can achieve by the use of deductions and exclusions. The analysis describes the revenue effects and the distributional consequences of such a cap, and examines the sensitivity of these results to various design features.
    JEL: H2
    Date: 2014–11
  2. By: Kindermann, Fabian; Krueger, Dirk
    Abstract: In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.
    Keywords: Progressive Taxation,Top 1%,Social Insurance,Income Inequality
    JEL: E62 H21 H24
    Date: 2014
  3. By: Luttmer, Erzo F.P. (Dartmouth College); Singhal, Monica (Harvard Kennedy School)
    Abstract: Standard economic models of tax compliance have focused on enforcement-driven compliance. Notably, tax administrators also tend to place a great deal of emphasis on the importance of improving "tax morale" by encouraging voluntary compliance, creating a culture of compliance, and changing social norms. Tax morale does indeed appear to be an important component of compliance decisions, and there is strong evidence that tax morale operates through a variety of underlying channels. There is less evidence - to date - that indicates we know how to leverage these channels to improve compliance and revenue collection in a consistently successful way.
    Keywords: tax compliance, intrinsic motivation, reciprocity, social effects, culture
    JEL: H26
    Date: 2014–08
  4. By: Blaufus, Kay; Braune, Matthias; Hundsdoerfer, Jochen; Jacob, Martin
    Abstract: In a real-effort laboratory experiment to manipulate evasion opportunities, we study whether the moral evaluation of tax evasion is subject to a self-serving bias. We find that tax morale is egoistically biased: Subjects with the opportunity to evade taxes judge tax evasion as less unethical as opposed to those who cannot evade. The detection probability does not affect this result. Further, we do not find moral spillover effects, for example, on legal activities.
    Keywords: Evasion,Tax Morale,Tax Compliance,Self-Serving Bias,Moral Spillover
    JEL: H20 H26
    Date: 2014
  5. By: Soojin Kim (Purdue University)
    Abstract: Two key determinants of optimal tax policies in open economies are the mobility of factors of production, capital and labor; and strategic interaction between governments in setting their policies. This paper develops a two-country, open-economy model with labor mobility and a global nancial market to study optimal taxation. Governments engage in tax competition in which they choose a labor income tax code and a capital income tax rate. A quantitative application of the model to the United Kingdom (UK) and Continental European countries (CE) shows that factor mobility and competition between governments are indeed crucial in the design of optimal policies. Incorporating labor mobility leads to a divergence in the optimal tax system: Unlike in an economy with only capital mobility, where both countries use similar capital income tax rates, the optimal capital income tax rate in the UK is lower than that in the CE when both capital and labor are mobile. This is due to the dierences in productivity between the two countries. In the calibrated economy, the UK, whose productivity is higher than that of the CE, attracts more labor through migration. Thus, the welfare-maximizing level of capital in the relatively small CE is lower than that in the UK. Moreover, I nd that capital income tax rates are higher with competition. With competition, both governments lower capital income tax rates, rendering the marginal benet of a lower tax rate to decrease. The steady-state welfare gain from implementing the Nash equilibrium policies is about 11 percent of consumption of the status quo economy.
    Date: 2014
  6. By: Szarowska, Irena
    Abstract: Although taxes have not generated the crisis, some aspects of tax policy may have led to increased risk-taking and indebtedness of banks, households and companies. Tax incentives may indeed the behavior of economic agents, leading them to wrong economic decisions. The aim of the paper is to review main channels through which the tax policy can affect financial markets and financial stability. Attention is focused on last and current development of tax reliefs for housing and capital gains, tax benefits for corporate debt financing and taxation of financial institutions Conventional scientific methods such as analysis, induction, comparison and synthesis are used in the paper.
    Keywords: crisis; corporate debt financing; housing; taxation of financial institutions
    JEL: G1 G10 G20 G3 H2
    Date: 2013
  7. By: Williams III, Roberton C. (Resources for the Future); Gordon, Hal (Resources for the Future); Burtraw, Dallas (Resources for the Future); Carbone, Jared C.; Morgenstern, Richard D. (Resources for the Future)
    Abstract: Carbon taxes introduce potentially uneven cost burdens across the population. The distribution of these costs is especially important in affecting political outcomes. This paper links dynamic overlapping-generations and microsimulation models of the United States to estimate the initial incidence of a carbon tax across states. Geographic differences in incidence are driven primarily by differences in sources of income. Differing patterns of energy use also matter but are relatively less important. The use of the carbon tax revenue plays an important role, particularly in determining how different income sources are affected, as: (1) using carbon tax revenue to cut capital taxes disproportionately benefits states with large shares of capital income; (2) returning the revenue via lump-sum transfers favors relatively low-income states; and (3) returning the revenue via cuts in labor taxes provides a relatively even distribution of cost across states. In general, geographic differences in incidence are substantially smaller than the differences across income groups.
    Keywords: carbon tax, distribution, incidence, tax swap, states, geography, climate change
    JEL: H22 H23 Q52
    Date: 2014–10–07
  8. By: Ajay Agrawal; Carlos Rosell; Timothy S. Simcoe
    Abstract: We exploit a change in eligibility rules for the Canadian Scientific Research and Experimental Development (SRED) tax credit to gain insight on how tax credits impact small-firm R&D expenditures. After a 2004 program change, privately owned firms that became eligible for a 35 percent tax credit (up from a 20 percent rate) on a greater amount of qualifying R&D expenditures increased their R&D spending by an average of 15 percent. Using policy-induced variation in tax rates and R&D tax credits, we estimate the after-tax cost elasticity of R&D to be roughly -1.5. We also show that the response to changes in the after-tax cost of R&D is larger for contract R&D expenditures than for the R&D wage bill and is larger for firms that (a) perform contract R&D services or (b) recently made R&D-related capital investments. We interpret this heterogeneity as evidence that small firms face fixed adjustment costs that lower their responsiveness to a change in the after-tax cost of R&D.
    JEL: H2 H71 O25 O31 O38
    Date: 2014–10
  9. By: Salant, Stephen (Resources for the Future); Seegert, Nathan
    Abstract: We reconsider an important debate between Pigou (1920) and Knight (1924) nominally about congestible roads. Contrary to Knight's contention, allowing independent players to set tolls on congestible roads does not necessarily induce an efficient allocation of motorists. Toll- setting does result in efficient allocation in the limit of a large economy even in the absence of any uncongestible road. But in the more realistic circumstance of a finite economy, toll- setting—unlike Pigouvian taxes—will not in general achieve efficiency. We use these results to demonstrate a role for government in producing an uncongestible option that provides the necessary “competitive conditions” for toll-setting to reach the efficient outcome. These results are important for other allocation problems involving congestion. They even apply to the allocation of researchers across different contests where prize setters offer each winner a monetary prize and must compete with other prize setters and with jobs offering riskless compensation.
    Keywords: congestion externality
    JEL: H21 H23
    Date: 2014–08–13

This nep-pub issue is ©2014 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.