nep-pub New Economics Papers
on Public Finance
Issue of 2015‒04‒19
eight papers chosen by

  1. Top Rate of Income Tax By Alan Manning
  2. Demand for 'The 1%': Tax Incidence and Implications for Optimal Income Tax Rates By Richard K. Green and Mark D. Phillips
  3. Time-Consistent Consumption Taxation By Sarolta Laczó; Raffaele Rossi
  4. Tax structure and macroeconomic performance By Giampaolo Arachi; Valeria Bucci; Alessandra Casarico
  5. Tax incentives for innovation By Joanna Stryjek
  6. Are PILOTs Property Taxes for Nonprofits? By Fan Fei; James R. Hines Jr.; Jill R. Horwitz
  7. Shared state taxes and tax policy of local self-governments in connection with tax morale By Agnes Sipos
  8. Distributive Aspect of Real Estate Property and its Taxation among Brazilian Families By Pedro Humberto Bruno de Carvalho Jr

  1. By: Alan Manning
    Abstract: The main political parties disagree about the appropriate rate of income Tax on the highest incomes. This note lays out the economic principles surrounding the top rate of income tax and considers the evidence that high earners respond to higher tax rates by working less or by taking steps to avoid tax. The evidence suggests that increased avoidance rather than reduced labour supply is the biggest problem when raising tax rates on the rich.
    Keywords: Top rate of income tax
    Date: 2015–04
  2. By: Richard K. Green and Mark D. Phillips
    Abstract: We develop a model for determining the optimal high income linear tax rate when there exist imperfectly substitutable types of labor. If one type is disproportionately prevalent among higher income taxpayers, then wages adjust in response to more progressive taxation and part of the statutory tax burden is shifted to lower income taxpayers. Our derivation is expressed in terms of readily interpretable elasticity and income distribution parameters which we use to estimate the optimal top tax rate under various plausible alternatives. We reject the notion from the previous literature that wage adjustments are costly enough (from a social welfare perspective) to warrant non-progressive taxation, much less subsidization of high income taxpayers. However, we also estimate that the optimal tax rate may be significantly smaller than when incidence effects are ignored, and may in fact be quite similar to current rates under U.S. policy.
    Keywords: Optimal income taxation; tax incidence ;income distribution
    Date: 2015
  3. By: Sarolta Laczó (Bank of England; Centre for Macroeconomics (CFM)); Raffaele Rossi (Department of Economics Management School Lancaster University)
    Abstract: We characterise optimal fiscal policies in a Real Business Cycle model when the government has access to consumption taxation but cannot credibly commit to future policies. Contrary to the case where only labour and capital income are taxed, the optimal time-consistent policies are remarkably similar to their Ramsey counterparts, as long as the capital income tax causes some distortion within the period. The welfare gains from commitment are negligible, while they are substantial without consumption taxation. Further, the welfare gains from taxing consumption are much higher without commitment. These results suggest that the policy-maker's ability to commit is of secondary importance if consumption is taxed optimally.
    Keywords: fiscal policy, Markov-perfect policies, consumption taxation, variable capital utilisation, endogenous government spending
    JEL: E62 H21
    Date: 2015–01
  4. By: Giampaolo Arachi; Valeria Bucci; Alessandra Casarico
    Abstract: This paper reassesses the relationship between tax structure and long run income, using as indicators of tax structure both a new series of implicit tax rates based on Mendoza et al. (1997) and tax ratios, adopting a dynamic panel estimation strategy, and explicitly accounting for cross-section dependence in the panel. When implicit tax rates are used, the paper shows, the link between tax structure and long run income per capita is not robust to the adoption of different assumptions on observable and unobservable heterogeneity across countries. When tax ratios are used, there is some evidence of a negative impact of labour taxation on long run income, but this result is shown to capture non-fiscal effects coming from the evolution of the labour share. Turning to the short run, the research presented here finds strong evidence of a positive effect on per capita income of a tax shift from labour and capital taxation towards consumption taxation, which provides support for fiscal devaluations.
    Keywords: long run income, tax structure, fiscal devaluation, cross-section dependence
  5. By: Joanna Stryjek (Warsaw School of Economics)
    Abstract: Tax incentives for innovation, including in particular the incentives for R&D investments, are universally used policy tools. Their availability and generosity have significantly increased over the past three decades. The observed proliferation of R&D tax incentives raises the question of the effectiveness (as well as other potential unknown advantages) of these policy instruments. The purpose of this paper is to carry out an analysis of the reasons (1) why R&D tax incentives became such a popular policy tool and (2) why there was an increase in generosity of this kind of incentives in recent years. As far as the theoretical base for the analysis is concerned, the paper refers particularly to (1) the inter-jurisdictional competition theories relating to tax competition and (2) the (quasi-) public-good nature of knowledge and innovation. The analysis is carried out with the use of the existing data and research on the subject. The results indicate that these are the changes (processes taking place) in the international environment that have considerably stimulated the proliferation and the increase in generosity of R&D tax incentives.
    Keywords: innovation; R&D; tax incentives; tax credit; tax competition
    JEL: O31 O38 H21
    Date: 2015–04
  6. By: Fan Fei; James R. Hines Jr.; Jill R. Horwitz
    Abstract: Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of PILOTs to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percent higher property tax rate is associated with a 0.2 percent higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percent higher PILOT rate is associated with 0.8 percent reduced real property ownership by local nonprofits, 0.2 percent reduced total assets, and 0.2 percent lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.
    JEL: H25 L31
    Date: 2015–04
  7. By: Agnes Sipos (Budapest Business School)
    Abstract: Based on our assumption, tax morale significantly depends on a country’s legal, historical, social and cultural background and circumstances. In the first part of the paper, we discuss the legal dimension of the tax morale – including the interconnection of law, ethics and moral. Furthermore, we analyze the facts breaching tax liabilities under the scope of the criminal law and the actions violating the tax morale but not qualified as infringement of the criminal law. In the second part of the paper, we provide empirical evidences which factors (e.g. personal characteristics, commitment for paying local taxes, knowledge about the distribution of paid taxes between central and local authorities, etc.) determine significantly the individual level of tax morale. The paper discusses these complex connections either from the viewpoint of law or economics in order to find out whether it is possible to develop the tax morale of individuals, or can the legislator adequately rule the different forms of tax evasion.
    Keywords: tax morale, legal morale, tax regime, tax system
    JEL: H21 H23 H24 H26
    Date: 2015–04
  8. By: Pedro Humberto Bruno de Carvalho Jr
    Abstract: The paper seeks to analyze the distribution of real estate assets among Brazilian families and Imposto Predial e Territorial Urbano (IPTU) – property tax – their main form of taxation. The text points out that real estate property usufruct is more concentrated than family income itself, despite the fact that IPTU boasts a dubious behavior, from a distributive standpoint. The tax burden is heavier on wealthier families, since only a few low-income families actually pay property tax. However, when only the universe of actual taxpayers is examined, it is observed that the tax structure is highly regressive, with poorer taxpayers more likely to undergo a heavier tax burden. The main causes pointed out in the text are poor administrative management, outdated and regressive official real estate assessment versus property market values and the lack of a comprehensive coverage of tax maps and inventories of poor dwelling units. The possibility of adoption of progressive tax rates, introduced by Constitutional Amendment no 29 of 2000, did little to alter IPTU distribution in the municipalities that embraced it, for they were not duly calibrated in accordance with the distribution of the properties’ market values to be taxed. Additionally, the paper demonstrates that a broad IPTU exemption policy, together with poor administrative and assessorial quality end up exempting middle and higher-income families from paying property tax. A Tax Reform devised to increase tax progressiveness in Brazil, increasing property tax bills and easing the tax weight on consumption, must be perceptive of the distributive aspects of IPTU, instead of merely focusing on an increase or progression of tax levy rates. O trabalho visa analisar a distribuição do patrimônio imobiliário das famílias brasileiras e a sua principal forma de tributação, o Imposto Predial e Territorial Urbano (IPTU). Ele destaca que o usufruto do patrimônio imobiliário das famílias é mais concentrado que a própria renda familiar, não obstante o IPTU apresentar comportamento dúbio do ponto de vista distributivo. A carga tributária é maior sobre as famílias mais ricas, já que poucas famílias pobres de fato pagam o imposto. Porém, quando se analisa somente o universo de pagantes, a sua estrutura é altamente regressiva, com os contribuintes mais pobres sofrendo uma tributação maior. As principais causas apontadas pelo texto são a má gestão administrativa, a defasagem e a regressividade nas avaliações imobiliárias oficiais em relação aos valores de mercado e a falta de abrangência do cadastro imobiliário fiscal entre os domicílios mais pobres. A possibilidade de aplicação de alíquotas progressivas, permitidas a partir da Emenda Constitucional (EC) no 29 de 2000, pouco alterou a distribuição do IPTU nos municípios que a adotaram, pois elas não foram devidamente calibradas de acordo com a distribuição dos valores venais dos imóveis a serem tributados. Também é mostrado que uma ampla política de isenção de IPTU aliada à má qualidade administrativa e avaliatória acabam isentando famílias de renda média e alta do pagamento desse imposto. Uma reforma tributária que pretenda aumentar a progressividade da tributação no Brasil, aumentando os tributos sobre a propriedade e diminuindo o peso dos impostos sobre o consumo tem de estar atenta aos aspectos distributivos do IPTU e não apenas ao mero aumento ou progressão das alíquotas.
    Date: 2015–01

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