nep-pub New Economics Papers
on Public Finance
Issue of 2015‒02‒28
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Differential Taxation and Occupational Choice By Renato Gomes ; Jean-Marie Lozachmeur ; Alessandro Pavan
  2. Progressivity and decomposition of VAT in the Mexican border, 2014 By Luis Huesca ; Arturo Robles Valencia ; Abdelkrim Araar
  3. Tax Rates and Tax Evasion: Evidence from Missing Imports in Tanzania By Epaphra, Manamba
  4. Income Taxes, Sorting, and the Costs of Housing: Evidence from Municipal Boundaries in Switzerland By Christoph Basten ; Maximilian von Ehrlich ; Andrea Lassmann
  5. Fiscal Policy and Equity in Advanced Economies: Lesssons for Asia By Gemma ESTRADA ; James ANGRESANO ; Jo Thori LIND ; Niku MAATTANEN ; William MCBRIDE ; Donghyun PARK ; Motohiro SATO ; Karin SVANBORG-SJOVALL

  1. By: Renato Gomes ; Jean-Marie Lozachmeur ; Alessandro Pavan
    Abstract: We study nonlinear income taxation in a Roy model in which agents’ productivity is sector-specific. We show that when income taxes can be sector-specific, the Diamond-Mirrlees theorem (according to which the second-best displays production efficiency) fails: social welfare (be it Rawlsian or Weighed Utilitarian) can be increased by assigning some agents to their least productive sector. By sacrificing production efficiency, the planner incurs second-order losses in total output, but obtains a first-order reduction in the informational costs of redistribution. The same result obtains when the government is constrained to a uniform income tax schedule, as long as sales taxes can be made sector-specific. In this latter case, our result also implies failure of the Atkinson-Stiglitz theorem (according to which, when preferences over consumption and leisure are separable, as they are in our economy, the second-best can be implemented with zero sales taxes).
    Keywords: income taxation, occupational choice, sales taxes, sector-specific taxation, production efficiency JEL Classification: C72, D62
    Date: 2014–07–01
  2. By: Luis Huesca (Centro de Investigación en Alimentación y Desarrollo ); Arturo Robles Valencia (Centro de Investigación en Alimentación y Desarrollo ); Abdelkrim Araar (Université Laval, Québec, Canada )
    Abstract: We measure the general redistributive effect in the Mexican fiscal system and its northern border with two decomposition approaches. The novelty of this application lies in the use of non-parametric techniques and the fact that we did not assume any functional relationship among the variables in analysis. Our paper contributes with an assessment of the new 2014 fiscal reform according to the Value Added Tax (VAT) and its effects on the households. A tax-benefit system with relative progressivity but high HI effect is found as well as an increase on tax revenues up to 4 percent of GDP from VAT in the border as well. Our analytical method to decompose the total progressivity measured by the contributions of different tax sources from VAT, allow us to conclude which sort of products should or should not be taxed with the general rate.
    Keywords: Value added tax; redistribution; vertical equity; horizontal inequity; non-parametric analysis
    JEL: D63 H22 H23 I32 C14
    Date: 2015–01–01
  3. By: Epaphra, Manamba
    Abstract: Tax evasion is the basic characteristic of many developing countries. De facto tax collections are consequently far below revenue implied by published or de jure tax rates. This paper empirically examines tax rates (tariff plus VAT rates) as the determinants of customs revenue evasion across products, based on a systematic analysis of discrepancies in trade declarations for trading partners, United Republic of Tanzania, Republic of South Africa and China. The results indicate that trade gap is highly correlated with tax rates, that is, much more value is lost for products with higher tax rates. The results also show that the trade gap is correlated with tax rates on closely related products from Republic of South Africa, implying that evasion takes place through misclassification of imports from higher-taxed categories to lower-taxed ones. However, there is no evidence of misclassification of imports from China. The wide divergences between the effective and statutory tax rates in Tanzanian tax system indicate that there is a scope for raising tax revenue without increasing tax rates by reinforcing tax and customs administrations and reducing tax evasion.
    Keywords: tax evasion, imports, tariff rate, and import VAT
    JEL: H20 H26
    Date: 2015
  4. By: Christoph Basten (KOF Swiss Economic Institute, ETH Zurich, Switzerland ); Maximilian von Ehrlich (University of Berne, Switzerland ); Andrea Lassmann (KOF Swiss Economic Institute, ETH Zurich, Switzerland )
    Abstract: This paper provides novel evidence on the role of income taxes for residential rents and spatial sorting. Drawing on comprehensive apartment-level data, we identify the effects of tax differentials across municipal boundaries in Switzerland. The boundary discontinuity design (BDD) corrects for unobservable location characteristics such as environmental amenities or the access to public goods and thereby reduces the estimated response of housing prices by one half compared to conventional estimates: we identify an income tax elasticity of rents of about 0.26. We complement this approach with census data on local sociodemographic characteristics and show that about one third of this effect can be traced back to a sorting of high-income households into low-tax municipalities. These findings are robust to a matching approach (MBDD) which compares identical residences on opposite sides of the boundary and a number of further sensitivity checks.
    Keywords: Local taxation, income taxation, housing prices, income sorting, boundary discontinuity design, spatial differencing
    JEL: H71 H24 R21 R38 C14
    Date: 2014–07
  5. By: Gemma ESTRADA (Senior Economics Officer, Asian Development Bank ); James ANGRESANO (Professor of Political Economy, College of Idaho ); Jo Thori LIND (Professor, University of Oslo ); Niku MAATTANEN (Research Supervisor, Research Institute of the Finnish Economy ); William MCBRIDE (Chief Economist, Tax Foundation, Washington DC ); Donghyun PARK (Principal Economist, Economics and Research Department, Asian Development Bank ); Motohiro SATO (Professor, Graduate School Economics, Hitotsubashi University ); Karin SVANBORG-SJOVALL (President of Timbro, Sweden )
    Abstract: Advanced economies have a longer history of leveraging fiscal policy to address inequality relative to developing Asia. We examine the country experiences of the Nordic countries, France, Japan, and the US, to draw lessons for developing Asia in its relatively new quest to use fiscal policy to promote inclusive growth. Those experiences suggest that fiscal policy can indeed be an effective tool for inclusive growth as long as it does not compromise fiscal sustainability or economic growth.
    Keywords: Fiscal policy, inequality, inclusive growth, advanced countries, developing Asia
    JEL: D31 H20 H50
    Date: 2015–01

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