nep-pub New Economics Papers
on Public Finance
Issue of 2015‒08‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Consumer Spending and Property Taxes By Surico, Paolo; Trezzi, Riccardo
  2. A Model for Tax Evasion with Some Realistic Properties By Richard Vale
  3. Transfer pricing manipulation, tax penalty cost and the impact of foreign profit taxation By Alex Augusto Timm Rathke
  4. Improving public sector efficiency for more inclusive growth in Latvia By Caroline Klein; Robert W.R. Price
  5. The End of the Flat Tax Experiment in Slovakia By Michal Horvath; Matus Senaj; Zuzana Siebertova; Norbert Svarda

  1. By: Surico, Paolo (London Business School); Trezzi, Riccardo (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A major change of the property tax system in 2011 generated significant variation in the amount of housing taxes paid by Italian households. Using new questions added to the Survey on Household Income and Wealth (SHIW), we exploit this variation to provide an unprecedented analysis of the effects of property taxes on consumer spending. A tax on the main dwelling leads to large expenditure cuts among households with mortgage debt and low liquid wealth but generates only small revenues for the government. In contrast, higher tax rates on other residential properties reduce private savings and yield large tax revenues.
    Keywords: Fiscal consolidation; marginal propensity to spend; mortgage debt; residential property taxes
    JEL: E21 E62 H31
    Date: 2015–07–27
  2. By: Richard Vale
    Abstract: We present a discrete-time dynamic model of income tax evasion. The model is solved exactly in the case of a single taxpayer and shown to have some realistic properties, including avoiding the Yitzhaki paradox. The extension to an agent-based model with a network of taxpayers is also investigated.
    Date: 2015–08
  3. By: Alex Augusto Timm Rathke
    Abstract: This paper analizes the optimal level of transfer pricing manipulation when the expected tax penalty is a function of the tax enforcement and the market price parameter. The arm's length principle implies the existence of a range of acceptable prices shaped by market, and firms can manipulate transfer prices more freely if market price range is wide, or if its delimitations are difficult to determine. Home taxation of foreign profits can reduce income shifting incentive, depending on the portion of repatriation for tax purposes. We find that the limited tax credit rule tends to be a less efficient measure, nonetheless it is the most widely adopted rule by countries, so to spark the perspective of more powerful approaches for taxation of foreign profits.
    Date: 2015–08
  4. By: Caroline Klein; Robert W.R. Price
    Abstract: This working paper explores avenues to improve public sector efficiency in Latvia, a catching-up and ageing economy where spending needs are large. Ensuring that spending allocated to core services (e.g. education, healthcare) is adequate to achieve convergence of policy outcomes to OECD upper standards is challenging. Efficiency gains in the tax system could bring additional revenues. The tax base should be expanded by reducing informality, strengthening tax administration and increasing property and environmentally related taxes, which are low by international standards. To reduce unemployment and income inequality, the tax-benefit system should also be revised as it is now relatively regressive and the tax wedge on low-income earners is high. Enhancing analytical, monitoring and assessment capacities should help to rein in wasteful expenditure and improve the prioritisation of spending. The reform of human resource management, public procurement, and state-local relations is also needed to deliver higher-quality and more cost-efficient public services.<P>Améliorer l'efficience du secteur public pour une croissance plus inclusive en Lettonie<BR>Ce document de travail explore des pistes pour améliorer l’efficience du secteur public en Lettonie, une économie en rattrapage et vieillissante où les besoins de dépenses restent importants. L’enjeu va consister à assurer un niveau adéquat de dépenses consacrées aux services fondamentaux (éducation, santé) pour faire converger les résultats de l’action publique vers les normes les plus élevées de l’OCDE. Des gains d’efficience dans le système fiscal permettraient de collecter des recettes supplémentaires. On pourrait élargir la base d’imposition en réduisant l’activité informelle, en renforçant l’administration de l’impôt et en relevant les taxes immobilières et environnementales dont le niveau est faible par comparaison internationale. Pour abaisser le chômage et les inégalités de revenus, il faudrait aussi revoir le système de prélèvements et de prestations, car il est relativement régressif et le coin fiscal sur les personnes à faible revenu est important. Améliorer les capacités d’analyse, de contrôle et d’évaluation devrait contribuer à contenir les dépenses inutiles et à mieux hiérarchiser les priorités de dépenses. Une réforme de la gestion des ressources humaines, des marchés publics et les relations entre l’État et les collectivités locales s’impose également pour la fourniture de services publics de plus haute qualité et offrant un meilleur rapport coût-efficacité.
    Keywords: public procurement, tax administration, fiscal policy, inequality, budgetary framework
    JEL: E62 H2 H5 H6 H7 H83
    Date: 2015–08
  5. By: Michal Horvath; Matus Senaj; Zuzana Siebertova; Norbert Svarda
    Abstract: The paper provides a quantitative assessment of the consequences of departing from a flat-tax system in the context of Slovakia. A behavioural microsimulation model of the labour supply is embedded into ageneral equilibrium framework with search and matching frictions. Some recently implemented marginal changes in the tax system leave aggregate labour market indicators as well as inequality measures virtually unaffected. We also examine hypothetical revenue-neutral reforms that would significantly increase the progressivity of the system through graduated marginal tax rates. We find that there are narrow limits to what policy makers could accomplish through such reforms in terms of employment and equality of income. Hence, an income tax reform should at best be seen as a complementary tool to other initiatives promoting such objectives. Moreover, we highlight an important trade-off: income tax reforms that promote employment may harm growth.
    Keywords: flat tax, microsimulation, general equilibrium, search and matching, labour supply elasticity
    JEL: E24 H24 H31 J22
    Date: 2015–08

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