nep-pub New Economics Papers
on Public Finance
Issue of 2014‒12‒19
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How does tax progressivity and household heterogeneity affect Laffer curves? By Holter, Hans A.; Krueger, Dirk; Stepanchuk, Serhiy
  2. Piecewise Linear Income Tax Reforms By Alan Krause
  3. Income Inequality, Redistribution and their Effect on Inequality in Longevity By Plümper, Thomas; Neumayer, Eric
  4. Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement By Paul Carrillo; Dina Pomeranz; Monica Singhal
  5. The Initial Incidence of a Carbon Tax across Income Groups By Williams III, Roerton C.; Gordon, Hal; Burtraw, Dallas; Jared C. Carbone; Morgenstern, Richard D.
  6. The New Full-time Employment Taxes By Casey B. Mulligan
  7. Effects of taxation by economic functions on economic growth in the European Union By Szarowska, Irena
  8. How do employment tax credits work? An analysis of the German inheritance tax By Franke, Benedikt; Simons, Dirk; Voeller, Dennis

  1. By: Holter, Hans A.; Krueger, Dirk; Stepanchuk, Serhiy
    Abstract: How much additional tax revenue can the government generate by increasing labor income taxes? In this paper we provide a quantitative answer to this question, and study the importance of the progressivity of the tax schedule for the ability of the government to generate tax revenues. We develop a rich overlapping generations model featuring an explicit family structure, extensive and intensive margins of labor supply, endogenous accumulation of labor market experience as well as standard intertemporal consumption-savings choices in the presence of uninsurable idiosyncratic labor productivity risk. We calibrate the model to US macro, micro and tax data and characterize the labor income tax Laffer curve under the current choice of the progressivity of the labor income tax code as well as when varying progressivity. We find that more progressive labor income taxes significantly reduce tax revenues. For the US, converting to a flat tax code raises the peak of the Laffer curve by 6%, whereas converting to a tax system with progressivity similar to Denmark would lower the peak by 7%. We also show that, relative to a representative agent economy tax revenues are less sensitive to the progressivity of the tax code in our economy. This finding is due to the fact that labor supply of two earner households is less elastic (along the intensive margin) and the endogenous accumulation of labor market experience makes labor supply of females less elastic (around the extensive margin) to changes in tax progressivity.
    Keywords: Progressive Taxation,Fiscal Policy,Laffer Curve,Government Debt
    JEL: E62 H20 H60
    Date: 2014
  2. By: Alan Krause
    Abstract: This paper addresses questions of the following nature: under what conditions does a welfare-improving reform of the existing piecewise linear income tax schedule necessitate a change in a particular agent type's marginal tax rate? Our analysis therefore addresses the sorts of questions typically debated by policy-makers, using a model of income taxation that resembles income tax systems used in practice. A locally optimal tax schedule is a special case of our tax reform analysis---the current piecewise linear income tax schedule is locally optimal if there does not exist an equilibrium-preserving and welfare-improving reform. We show that local optima involve progressive taxation, in that marginal tax rates are increasing in income. An extension of the model to include linear commodity taxation is also considered. In this case, local optima comprise positive commodity taxation and progressive income taxation.
    Keywords: tax reform; piecewise linear income taxation.
    JEL: H21 H24
    Date: 2014–11
  3. By: Plümper, Thomas (University of Essex); Neumayer, Eric (London School of Economics)
    Abstract: Objectives. We examined the effects of market income inequality (income inequality before taxes and transfers) and income redistribution via taxes and transfers on inequality in longevity. Methods. Life tables were used to compute Gini coefficients of longevity inequality for all individuals and for individuals that survived at least to the age of ten. Longevity inequality was regressed on market income inequality and income redistribution controlling for a range of potential confounders in a cross-sectional time-series sample of up to 29 predominantly Western developed countries and up to 37 years. Results. Income inequality before taxes and transfers had a positive effect on inequality in the number of years lived, while income redistribution (the difference between market income inequality and income inequality after taxes and transfers have been accounted for) had a negative effect on longevity inequality. Conclusions. Governments can reduce inequality in the number of years lived not only via public health policies, but also via their influence on market income inequality and the redistribution of incomes from the relatively rich to the relatively poor.
    Keywords: London School of Economics
    Date: 2014
  4. By: Paul Carrillo; Dina Pomeranz; Monica Singhal
    Abstract: Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection.
    JEL: H25 H26 O23 O38
    Date: 2014–10
  5. By: Williams III, Roerton C. (Resources for the Future); Gordon, Hal (Resources for the Future); Burtraw, Dallas (Resources for the Future); Jared C. Carbone; Morgenstern, Richard D. (Resources for the Future)
    Abstract: Carbon taxes efficiently reduce greenhouse gas emissions but are criticized as regressive. This paper links dynamic overlapping-generation and microsimulation models of the United States to estimate the initial incidence. We find that while carbon taxes are regressive, the incidence depends much more on how carbon tax revenue is used. Recycling revenues to cut capital taxes is efficient but exacerbates regressivity. Lump-sum rebates are less efficient but much more progressive, benefiting the three lower income quintiles even when ignoring environmental benefits. A labor tax swap represents an intermediate option, more progressive than a capital tax swap and more efficient than a rebate.
    Keywords: carbon tax, distribution, incidence, tax swap, income quintiles, climate change
    JEL: H22 H23 Q52
    Date: 2014–08–07
  6. By: Casey B. Mulligan
    Abstract: The Affordable Care Act introduces or expands taxes on incomes and full-time employment, beginning in 2014. The purpose of this paper is to characterize the new full-time employment taxes from the perspective of a household budget constraint, measure their magnitude, and assess their likely consequences for employee work schedules. When the ACA is fully implemented, full-time employment taxes will be prevalent and often as large as what workers can earn in five hours of work per week, 52 weeks per year. The economic significance of the ACA's full-time employment taxes varies by demographic group: they are non-monotonic in age, increasing with family size, and negatively correlated with schooling.
    JEL: H24 I13 J22
    Date: 2014–10
  7. By: Szarowska, Irena
    Abstract: The complexity of today’s global economic environment increases importance of identifying and understanding the key factors affecting economic growth. This paper deals with effect of changes in tax burden on economic growth and provides direct empirical evidence in the European Union as financial and economic crisis has impacted also on tax systems. It is used the Eurostat´s definition to categorize tax burden by economic functions and implicit tax rates of consumption, labour and capital are investigated. The analysis is based on annual panel data of 24 EU member states in a period 1995-2010. Panel regression and Pairwise Granger Causality Tests are used as the main method of research. Results confirm, in line with the theory, statistically significant positive effect of consumption taxes and negative effect of labour taxes on GDP growth. In short-term, there is two-way causality between change of implicit tax rate of consumption and GDP growth and one-way causality between GDP growth and change of implicit tax rate of capital and implicit tax rate of labour.
    Keywords: tax burden, implicit tax rates, economic functions, economic growth, competitiveness
    JEL: E62 H21 H30
    Date: 2013
  8. By: Franke, Benedikt; Simons, Dirk; Voeller, Dennis
    Abstract: Employment tax credit programs have been repeatedly used during economic crises, although their usefulness is empirically contestable. The objective of this paper is to quantify the tax effects of employment tax credit programs. A recent revision of the German inheritance tax law provides an eminent opportunity to analyze the effects caused by such a preferential treatment. The tax liability depends on a company's future employment expenses. Hence, we use micro-level data of realized business transfers from the German Inheritance Tax Statistic and combine them with a simulation of the future development of employment over the relevant time-horizon. We identify the magnitude of tax reductions granted to business transfers under a preferential treatment. Further, we demonstrate that these reductions are considerably larger in times of economic growth. Our findings also suggest that employment tax credits have pro-cyclical effects and specifically foster transfers between unrelated parties. Finally, the preferential treatment of business transfers does not provide incentives to increase employment.
    Keywords: Alternative tax treatments,Employment tax credits,Inheritance tax,Simulation
    JEL: C15 H30 K34
    Date: 2014

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