nep-pub New Economics Papers
on Public Finance
Issue of 2015‒07‒25
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Learning and (or) Doing: Human Capital Investments and Optimal Taxation By Stefanie Stantcheva
  2. Broadening the State: Policy Responses to the Introduction of the Income Tax By Mark Dincecco; Ugo Troiano
  3. Negative Income Tax and Labor Market Participation: A Short Run Analysis By Samir Amine; Pedro Lages Dos Santos
  4. Tax Convergence in the Eurozone By Ioana Laura Tibulca
  5. Surcharges and penalties in UK tax law By Rita de la Feria; Parintira Tanawong
  6. Corruption and Tax Evasion: Reflections on Greek Tragedy By Anastasia Litina; Theodore Palivos

  1. By: Stefanie Stantcheva
    Abstract: This paper considers a dynamic taxation problem when agents can allocate their time between working and investing in their human capital. Time investment in human capital, or "training," increases the wage and can interact with an agent's intrinsic, exogenous, and stochastic earnings ability. It also interacts with both current and future labor supply and there can be either "learning-and-doing" (when labor and training are complements, like for on-the-job training) or "learning-or-doing" (when labor and training are substitutes, like for college). Agents' abilities and labor supply are private information to them, which leads to a dynamic mechanism design problem with incentive compatibility constraints. At the optimum, the subsidy on training time is set so as to balance the total labor supply effect of the subsidy and its distributional consequences. In a one-period version of the model, particularly simple relations arise at the optimum between the labor wedge and the training wedge that can also be used to test for the Pareto efficiency of existing tax and subsidy systems. In the limit case of learning-by-doing (when training is a direct by-product of labor) or in the case in which agents who are more able at work are also more able at training, there are important modifications to the labor wedge.
    JEL: H21 H23 H24 H53 J24
    Date: 2015–07
  2. By: Mark Dincecco; Ugo Troiano
    Abstract: We present new evidence about a mechanism – the broadening of the tax base – through which governments increase state capacity. Our difference-in-differences identification strategy exploits the staggered introduction of the income tax across twentieth-century US states. We find that tax broadening is associated with 1) a significant increase in total revenues and 2) a significant increase in total government expenditures, and in particular spending on public goods in education and health. We show suggestive evidence that political ideology affects policy responses to the broadening of the tax base.
    JEL: D78 H11 H41 H75 N0 N21 N22 N41 N42
    Date: 2015–07
  3. By: Samir Amine; Pedro Lages Dos Santos
    Abstract: This article examines the effects of the Negative Income Tax, in a matching model, on labor market participation. We show that the introduction of such instrument reduces unemployment and improves the situation of the poorest. But, amazingly, it provokes a fall on labor market participation principally because the agents are then less selective. We find another surprising result: despite the rise on participation, the increasing of unemployment benefits improves the situation of the firms at the expense of workers.
    Keywords: Matching, participation, negative income tax.,
    JEL: D63 H21 J41 J64
    Date: 2015–07–13
  4. By: Ioana Laura Tibulca (Bucharest University of Economic Studies)
    Abstract: Tax convergence is one of the major issues that EU policy makers have been constantly debating over the last years. The goal of this study is to establish the existence or lack of tax convergence among the EU Member States that are also part of the Eurozone and also to understand if their membership in the Eurozone has reinforced tax convergence trends or not. In this research, the overall tax burden is seen as a suitable proxy for the tax system of a country. The research database contains information for the 19 European countries that are part of the Eurozone. The main research method is sigma-convergence based on the coefficient of variation, on the Gini index and on the Theil index. Results are calculated for different sets of data: the current Eurozone countries (19 countries), the current Eurozone countries and Denmark (20 countries), the "old" Eurozone countries (countries that adopted the Euro before 2002 - 12 countries) . AcknowledgementThis work was cofinanced from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013, project number POSDRU/159/1.5/S/142115 „Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain”.
    Keywords: convergence, taxation, Eurozone, Gini index, Theil index
    JEL: H20 H71 F30
  5. By: Rita de la Feria (Durham University); Parintira Tanawong (Durham University)
    Abstract: This paper reviews the tax penalties' regime in the UK, in the context of a general anti-evasion policy. It argues that the global economic crisis has had a significant impact in the UK surcharges and penalties system, intensifying the process initiated before, towards a much tougher regime. This new approach can be explained party on the basis of traditional considerations, such of deterrence and punishment; there is the suspicion, however, that it may be also based on other considerations, namely as an additional source of revenue, or as compensatory measure for the revenue lost through fraud. It concludes that tax penalties whose ratio is no longer (solely) deterrence are disproportionate, and as such, contrary to EU law, and the ECHR.
    Date: 2015
  6. By: Anastasia Litina (University of Luxembourg); Theodore Palivos (Athens University of Economics and Business)
    Abstract: We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they peculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that “corruption” may corrupt. Furthermore, we find that standard deterrence policies cannot eliminate the multiplicity of equilibria. Instead, policies that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibrium.
    Keywords: Corruption; Tax Evasion; Multiple Equilibria; Social Stigma
    JEL: D73 E62 H26
    Date: 2015–06

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