nep-pub New Economics Papers
on Public Finance
Issue of 2015‒04‒25
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation with Risky Human Capital By Marek Kapicka; Julian Neira
  2. Revenue-Maximising Tax Rates in Personal Income Taxation in the Presence of Consumption Taxes: A note By Sanz-Sanz, José Félix
  3. Tax administration and tax systems By Joel Slemrod
  4. Start-up Costs, Taxes and Innovative Entrepreneurship By Pourya Darnihamedani; Joern Hendrich Block; Jolanda Hessels; Aram Simonyan
  5. Local Tax Limits, Student Achievement, and School-Finance Equalization By Davis, Matt; Vedder, Andrea; Stone, Joe
  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. Corporate Tax Convergence in Asian and Pacific Economies By Yang Chen; Juan Cuestas; Paulo Regis
  8. Corporate Income Taxation in Estonia. Is It Time to Abandon Dividend Taxation? By Karsten Staehr

  1. By: Marek Kapicka (U.C. Santa Barbara and CERGE-EI); Julian Neira (Department of Economics, University of Exeter)
    Abstract: We study optimal tax policies in a life-cycle economy with risky human capital and permanent ability differences, where both ability and learning effort are private information of the agents. The optimal policies balance several goals: redistribution across agents, insurance against human capital shocks, incentives to accumulate human capital, and incentives to work. We show that, in the optimum, i) high-ability agents face risky consumption in order to elicit learning effort while low-ability agents are insured, ii) high-ability agents face a higher savings tax to discourage them from self-insuring, iii) under certain conditions, the inverse marginal labor income tax rate follows a random walk, and iv) the “no distortion at the top” result does not apply if discouraging labor supply increases incentives to invest in human capital. Quantitatively, we find large welfare gains for the U.S. from switching to an optimal tax system.
    Keywords: optimal taxation, income taxation, human capital
    JEL: E6 H2
    Date: 2015
  2. By: Sanz-Sanz, José Félix
    Abstract: This note computes revenue-maximising tax rates in personal income taxes in the presence of consumption taxes. It finds that the traditional Laffer analysis, which neglects the effects of marginal tax rates on consumption, overestimates the magnitude of revenue-maximising tax rates. The bias caused by this oversight is computed.
    Keywords: Marginal tax rates, Laffer curve, Consumption taxes, Tax revenue, Tax behaviour,
    Date: 2015
  3. By: Joel Slemrod (University of Michigan)
    Abstract: This is a review of the so-called "Optimal tax systems" approach to the economic analysis of taxation. This approach acknowledges the bunch of instruments the public sector has to collect revenues, but also the multiple responses of taxpayers to them. In a way, this is a more realistic approach to taxation, and so should provide reliable guides to action.
    Keywords: Optimal taxation, tax administration, multiple behavioral responses
    JEL: H20
    Date: 2015
  4. By: Pourya Darnihamedani (Erasmus University Rotterdam, the Netherlands); Joern Hendrich Block (University of Trier, Trier, Germany); Jolanda Hessels (Erasmus University Rotterdam, the Netherlands); Aram Simonyan (National Academy of Science of the Republic of Armenia, Yerevan, Republic of Armenia)
    Abstract: Prior research suggests that start-up costs and taxes negatively influence entry into entrepreneurship. Yet, no distinction is made regarding the type of entrepreneurship, particularly innovative versus non-innovative entrepreneurship. Start-up costs, being one-off costs, may reduce the entry of entrepreneurs whose ideas are not very promising, thus increasing the proportion of innovative entrepreneurs. Taxes, being recurring costs, may reduce the “prize” of innovation and the profit from entrepreneurship, discouraging individuals with innovative business ideas from becoming entrepreneurs. Analyzing a dataset of 632,116 individuals, including 43,223 entrepreneurs from 53 countries, we can confirm our main predictions. Our paper contributes to the discussion on how governmental regulation costs and taxes influence innovative entrepreneurship and technological deve lopment.
    Keywords: Innovative entrepreneurship, corporate taxes, personal income taxes, start-up costs, entrepreneurial profit
    JEL: H24 H25 L26 L51 O31
    Date: 2015–01–23
  5. By: Davis, Matt; Vedder, Andrea; Stone, Joe
    Abstract: Evidence that local tax and expenditure limits (TELs) for public K-12 schools lower student achievement is widely attributed to the effects of reduced funding, but our results cast doubt on reduced funding as the primary explanation for negative effects of TELs in the context of school-finance equalization (SFE) and instead suggest the importance of predictable funding. Students in districts subject to more severe local tax limits in Oregon score less well on eighth-grade tests in mathematics, but reduced funding is not the reason. Our analysis expands prior work by accounting for the extent to which TELs are actually binding, as well as for both pecuniary and non-pecuniary effects of TELs. Distinguishing pecuniary and non-pecuniary effects allows us to document that the negative effect of TELs in Oregon is not due to reduced expenditures. The state’s school-finance equalization (SFE) tends to offset funding differentials, so TELs have no significant effect on funding, but even if TELs did affect funding, the negative effect of TELs on achievement is significant even if district expenditures are held constant. Instead, the negative effect of more restrictive TELs appears to work by disrupting local planning. We isolate this effect by distinguishing the more uncertain first year of each biennial budget from the second year. Our quasi-experimental design accounts for district and year fixed effects, as well as for district-specific variations in expenditures and student attributes. Results are robust to a placebo test to reveal spurious correlation and to several alternative specifications.
    Keywords: taxes expenditures, limitations, students,achievement, school finance equalization
    JEL: H0 J0
    Date: 2015–01
  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: Yang Chen; Juan Cuestas; Paulo Regis
    Abstract: Countries in the Asia and Pacific region have shown many macroeconomic similarities such as current account surpluses, exchange rate appreciation, export-oriented economies, growth success, etc. This paper argues that there may be one more macroeconomic feature to add to the list: strong tax convergence. Using data on the statutory corporate tax rate in 15 countries from 1980 to 2014, we identify (i) a significant dynamic tax convergence pattern, and (ii) three tax convergence clubs. The latter consist of the small tax haven economies of Hong Kong and Singapore, the East Asian countries (plus one), and the South and Southeast Asian and Oceania countries. These economies, within groups, have been reducing the tax gaps with their neighbours over time.
    Date: 2014–09–16
  8. By: Karsten Staehr (Tallinn University of Technology Eesti Pank)
    Abstract: Estonia introduced a new corporate income tax system in 2000, under which corporate profit is taxed only when it is paid out as dividends to shareholders. The switch to distributed profit or dividend taxation was billed as a means to attract investment, support enterprises and increase employment. This Research Brief summarises the experiences and compares with developments in Latvia and Lithuania. The reforms improved liquidity and reduced the debt financing in Estonian companies and may also have given rise to increased investment and productivity at the firm level. The results are, however, less encouraging at the macroeconomic level. The tax revenue as a percentage of GDP has been very low since the introduction of dividend taxation, even during the pre-crisis boom in 2004-2007, and there are no immediate effects on labour productivity and GDP growth. The conclusion is that the switch to distributed profit taxation has not improved the overall macroeconomic performance in Estonia despite the easing of financing conditions and lower corporate income tax revenue. Abstract in Estonian:Ettevõtete tulumaksustamine Eestis: Kas on aeg loobuda dividendide maksustamise süsteemist?Karsten StaehrEestis on alates 2000.a kehtinud ettevõtte tulumaksu süsteem, mille raames maksustatakse ettevõtete kasumit alles siis, kui see makstakse dividendidena välja omanikele. Jaotatud kasumi maksustamisele ülemineku eesmärgiks oli investeeringute muutmine atraktiivsemaks, ettevõtluse toetamine ning töökohtade loomine. Käesolev kirjutis annab ülevaate senistest kogemustest ning võrdluse arengutega Lätis ja Leedus. Maksureformi tulemusel paranes Eestis ettevõtete likviidsus ning vähenes võõrfinantseerimise kasutamine ning see võib olla kaasa toonud ka investeeringute ja tootlikkuse suurenemist ettevõtte tasandil. Samas on makromajanduslikud tulemused tagasihoidlikumad. Maksutulud protsendina SKTst on olnud alates tulumaksusüsteemi muutmisest väga madalal tasemel, kaasa arvatud kriisieelse buumi aastatel 2004-2007, ning maksureformi mõju tööjõu tootlikkusele ning SKT kasvule ei ole märgata. Võib järeldada, et üleminek jaotatud kasumi maksustamisele ei ole Eesti üldistele makromajanduslikele tulemustele kaasa aidanud vaatamata sellele, et ettevõtete finantseerimistingimused on leevenenud ning riigi tulud ettevõtte tulumaksust on vähenenud. Artikkel on PDF versioonis eesti keeles: vaatamiseks vali link Full Text: PDF
    Date: 2014–01–17

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