nep-pub New Economics Papers
on Public Finance
Issue of 2015‒08‒19
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation with Asset Accumulation By Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
  2. Optimal Taxation with Endogenous Default under Incomplete Markets By Demian Pouzo; Ignacio Presno
  3. Individual heterogeneity, nonlinear budget sets and taxable income By Soren Blomquist; Anil Kumar; Che-Yuan Liang; Whitney Newey
  4. Changes in the Distribution of After-Tax Wealth: Has Income Tax Policy Increased Wealth Inequality? By Looney, Adam; Moore, Kevin B.
  5. Taxing Superstars By Ivan Werning; Florian Scheuer
  6. Does Credit-card Information Reporting Improve Small-business Tax Compliance? By Joel Slemrod; Brett Collins; Jeffrey Hoopes; Daniel Reck; Michael Sebastiani
  7. Ten Principles of Effective Tobacco Tax Policy By Caryn Bredenkamp; Roberto Magno Iglesias; Kai-Alexander Kaiser
  8. What future for taxation in the EU ? By Catherine Mathieu; Henri Sterdyniak
  9. Tax Havens and Effective Tax Rates: An Analysis of Private versus Public European Firms By Aziz Jaafar; John Thorton

  1. By: Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
    Abstract: Several frictions restrict the government's ability to tax assets. First, it is very costly to monitor trades on international asset markets. Second, agents can resort to nonobservable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset taxation have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we find that optimal labor income taxes become less progressive when governments face limitations in asset taxation. We evaluate the quantitative effect of imperfect asset taxation for two applications of our model.
    Keywords: Optimal Income Taxation, Capital Taxation, Progressivity
    JEL: D82 D86 E21 H21
    Date: 2014
  2. By: Demian Pouzo; Ignacio Presno
    Abstract: In a dynamic economy, we characterize the fiscal policy of the government when it levies distortionary taxes and issues defaultable bonds to finance its stochastic expenditure. Default may occur in equilibrium as it prevents the government from incurring in future tax distortions that would come along with the service of the debt. Households anticipate the possibility of default generating endogenous credit limits. These credit limits hinder the government's ability to smooth taxes using debt, rendering more volatile and less serially correlated fiscal policies, higher borrowing costs and lower levels of indebtness. Also, the near-random walk behavior of debt and taxes with risk-free debt under incomplete markets is altered once default risk is incorporated. In order to exit temporary financial autarky following a default event, the government has to repay a random fraction of the defaulted debt. We show theoretically that our debt restructuring process has implications for haircuts and duration of renegotiation episodes that are aligned with the data.
    Date: 2015–08
  3. By: Soren Blomquist (Institute for Fiscal Studies); Anil Kumar (Institute for Fiscal Studies); Che-Yuan Liang (Institute for Fiscal Studies); Whitney Newey (Institute for Fiscal Studies and MIT)
    Abstract: Many studies have estimated the effect of taxes on taxable income. To account for nonlinear taxes these studies either use instrumental variables approaches that are not fully consistent or impose strong functional form assumptions. None allow for general heterogeneity in preferences. In this paper we derive the expected value and distribution of taxable income conditional on a nonlinear budget set, allowing general heterogeneity and optimization error in taxable income. We find an important dimension reduction and use that to develop nonparametric estimation methods. We show how to nonparametrically estimate the expected value of taxable income imposing all the restrictions of utility maximization and allowing for measurement errors. We characterize what can be learned nonparametrically from kinks about compensated tax effects. We apply our results to Swedish data and estimate for prime age males a significant net of tax elasticity of 0.21 and a significant nonlabor income effect of about -1. The income effect is substantially larger in magnitude than it is found to be in other taxable income studies.
    Keywords: Nonlinear budget sets; nonparametric estimation; heterogeneous preferences; taxable income; revealed stochastic preference
    JEL: C14 C24 H31 J22
    Date: 2015–05
  4. By: Looney, Adam (Brookings Institution); Moore, Kevin B. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealized capital gains. Most data and statistics on assets and wealth is reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the SCF from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and distribution of after-tax net worth. The results of our analysis suggest that, relative to published statistics on pre-tax net worth, the distribution of after-tax wealth is slightly less concentrated at each point in time and the effectiveness of the income tax system in reducing wealth inequality has decreased during the last decade. We find the reduction in the long-term capital gains rate is the primary reason for the muted effectiveness of the income tax system in reducing wealth inequality.
    Keywords: Inequality; taxation; wealth
    JEL: H22 H24
    Date: 2015–06–05
  5. By: Ivan Werning (Massachusetts Institute of Technology); Florian Scheuer (Stanford University)
    Abstract: We develop a unifying framework for optimal income taxation in multi-activity economies with general production technologies. Agents are characterized by an N-dimensional skill vector that captures intrinsic abilities in N activities. The private return to each activity depends on individual skill and an aggregate activity-specific return, which is a general function of the economy-wide distribution of efforts across activities. The optimal tax schedule features a multiplicative income-specific correction to an otherwise standard tax formula. Because taxes affect the relative returns to different activities, this correction diverges, in general, from the weighted average of the Pigouvian taxes that would align private and social returns in each activity. We characterize this divergence as a function of relative return elasticities, and its implications for the shape of the income tax both generally and in a number of applications, including externality-free economies with general equilibrium effects, economies with increasing or decreasing returns to scale, zero-sum activities such as bargaining or rent extraction, and positive or negative spillovers.
    Date: 2015
  6. By: Joel Slemrod; Brett Collins; Jeffrey Hoopes; Daniel Reck; Michael Sebastiani
    Abstract: We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report released in 2011 which provides the Internal Revenue Service with information about payment card sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
    JEL: H26
    Date: 2015–07
  7. By: Caryn Bredenkamp; Roberto Magno Iglesias; Kai-Alexander Kaiser
    Abstract: This brief provides guidance in the design of effective tobacco tax policies in countries such as the emerging ASEAN economies, where tax administration and enforcement capacity may not be as strong as in OECD countries. It focuses on tobacco, but many of the principles are equally applicable to other excise taxes, such as alcohol. While bearing in mind that policy advice should always be tailored to context, these principles have wide applicability across countries. The brief is illustrated with examples from the 2012 Philippines tobacco and alcohol ‘sin tax’ reform and draws on the experience of World Bank teams in providing technical assistance to tobacco tax reforms in the Philippines, Vietnam and Indonesia.
    Keywords: expenditure, market analysis, good, tax” reform, excise taxes, price increases, barrier, valuation, surveillance, interest, income, future, future price, market prices internal revenue, laws, law enforcement, tax increases, health effects, government revenues, demand, indexation, political economy, revenues, incomes, stress, health, tax rates, pricing, nutrition, market, price, tax, middle-income country, inflation, serial numbers, enforcement, taxation, knowledge, alcohol tax, market share, tobacco taxes, technical assistance, share, smoking, discounts, products, tax administration, revenue, tax policy, warehouses, tax reform, return, strategy, tax revenues, implementation, brand, prices, sin tax, finance, tax structure, tax policies, tobacco tax, taxes, tax reforms
    Date: 2015–06
  8. By: Catherine Mathieu (OFCE); Henri Sterdyniak (OFCE)
    Abstract: The 11th EUROFRAME Conference on economic policy issues in the European Union was held in Paris on 6 June 2014. The aim of the conference is to provide an economic forum for debate on economic policy issues relevant in the European context. In June 2014 the Conference topic was: “What future for taxation in the EU?”. The programme and conference papers are available at the EUROFRAME Conference webpage: Six of the papers given at the Conference are released in this issue of the Revue de l’OFCE. European economies have high taxation levels, which allow financing the European Social Model,characterised by a high level of public and social spending. In 2012, the tax-to-GDP ratio was 39.4% for the whole EU, 40.4% for the euro area, as compared to 39.4% for Japan and 24.5% for the US. There are however wide disparities within the area. The tax-to-GDP ratio is higher than 45% in Denmark, Belgium and France, and ranges between 45% and 40% in Sweden, Finland, Italy and Austria. But it is below 35% in Greece, Spain, Poland, and Portugal; 30% in Slovakia, Ireland, Romania, and Bulgaria. There was no trend in the tax-to-GDP ratio developments at the EU level over the last 20 years.
    Keywords: Taxation; Prospective évonomique; Union européenne
    Date: 2015–07
  9. By: Aziz Jaafar (Bangor University); John Thorton (Bangor University)
    Abstract: We examine the impact of tax-haven operations on the effective corporate tax burdens of publicly listed and privately held firms domiciled in Europe. In particular, we consider how European firmsÕ tax haven operations interacts with factors such listing status and home-country tax reporting systems to determine the relative tax burdens of publicly listed and private firms. Our main empirical results show that tax haven operations is associated with lower effective tax rates for both private and public firms, and that the impact of tax havens in lowering effective tax rates is more pronounced for private firms than for public firms.Home country characteristics are also important determinants of effective tax rates for both private and public firms with tax havens. Given that firms, regardless of their listing status, use tax havens as tax avoidance mechanism in lowering tax burdens, regulatory and tax enforcement bodies should focus not only on public firms but also on private firms.
    Keywords: Effective tax rates, Publicly listed firms, Private firms, Tax havens
    JEL: H20 M41
    Date: 2015–05

This nep-pub issue is ©2015 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.