nep-pub New Economics Papers
on Public Finance
Issue of 2015‒08‒30
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation with Behavioral Agents By Emmanuel Farhi; Xavier Gabaix
  2. Whither the Marriage Tax? By James Alm; J. Sebastian Leguizamon
  3. Tax Competition, Local Infrastructure, and Business Taxation: A Comparison of Different Tax Instruments By Gugle, Elisabeth; Zodrow, George R.
  4. State Government Revenue Recovery from the Great Recession By James Alm; David L. Sjoquist
  5. Economic Study on Publications on all Physical Means of Support and Electronic Publications in the context of VAT By Ramboll, The Evaluation Partnership and Europe Economics
  6. Study on the economic effects of the current VAT rules for passenger transport By CPB Netherlands Bureau for Economic Policy Analysis
  7. Income and Earnings Mobility in U.S. Tax Data By Larrimore, Jeff; Mortenson, Jacob; Splinter, David
  8. Tax Compliance Under Different Institutional Settings in the EU: An Experimental Analysis By Stefania Ottone; Ferruccio Ponzano; Giulia Andrighetto
  9. The Distributional Effects of U.S. Clean Energy Tax Credits By Severin Borenstein; Lucas W. Davis
  10. The Incidence of Taxes on Sugar-Sweetened Beverages: The Case of Berkeley, California By John Cawley; David Frisvold
  11. Detroit Property Tax Delinquency---Social Contract in Crisis By James Alm; Timothy R. Hodge; Gary Sands; Mark Skidmore
  12. Analyzing and Reforming Tunisia's Tax System By James Alm
  13. Assessing and Reforming Enterprise Taxation in Pakistan By James Alm; Mir Ahmad Khan

  1. By: Emmanuel Farhi; Xavier Gabaix
    Abstract: This paper develops a theory of optimal taxation with behavioral agents. We use a general behavioral framework that encompasses a wide range of behavioral biases such as misperceptions, internalities and mental accounting. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externalities) and Mirrlees (nonlinear income taxation). We show how the canonical optimal tax formulas are modified and lead to a rich set of novel economic insights. We also show how to incorporate nudges in the optimal taxation frameworks, and jointly characterize optimal taxes and nudges. We explore the Diamond-Mirrlees productive efficiency result and the Atkinson-Stiglitz uniform commodity taxation proposition, and find that they are more likely to fail with behavioral agents.
    Date: 2015–01
  2. By: James Alm (Department of Economics, Tulane University); J. Sebastian Leguizamon (Department of Economics, Vanderbilt University)
    Abstract: We use household data from the Current Population Survey to calculate how the real value of the so-called "marriage tax" or "marriage subsidy" in the federal individual income tax has changed over the period 1969 to 2009. We examine three issues: the magnitude of the marriage tax/subsidy and its evolution over time, its effects on the distribution of income (including the effects of different demographic characteristics on the magnitudes and trends), and the causal factors in its evolution (e.g., tax changes, demographic changes). We find that the tax treatment of the family has changed significantly over time, from a large average marriage bonus in 1969, to a large marriage tax in much of the 1990s and early 2000s, to a large marriage subsidy since 2003. We also find that the marriage tax varies significantly and systematically by income level, as well as by the number of children in the family, the earnings ratios of the spouses, the race of the family, and the age of the household held. Finally, we find that changes in income and family composition have influenced the magnitudes and trends of marriage taxes and subsidies but that adjustments in the federal income tax code account for most of the observed changes.
    Keywords: marriage, individual income tax, marriage tax, taxable unit
    JEL: H24 J12 J16
    Date: 2015–08
  3. By: Gugle, Elisabeth (University of Victoria); Zodrow, George R. (Rice University and Centre for Business Taxation, Oxford University)
    Abstract: Most of the tax competition literature focuses on the provision of local public services to households. However, a number of papers, dating back to Zodrow and Mieszkowski (1986), analyze tax competition when capital taxes are used to finance local public services provided to businesses, examining the conditions under which such services are provided efficiently, under-provided, or overprovided. In addition, several prominent observers have noted that "benefit-related" business taxation is desirable on both efficiency and equity grounds and argued that such taxation should take the form of a tax based on production, such as an origin-based value-added tax. We evaluate this contention in this paper, comparing within the context of a standard model of interjurisdictional competition the relative efficiency properties of these alternative business taxes. Our simulation results suggest that under many circumstances it is more efficient to finance business public services with an origin-based production tax rather than a source-based capital tax. We also relate our results to others found in the existing literature on capital tax competition when public services are provided to businesses.
    JEL: H11 H21 H41 H42
    Date: 2014
  4. By: James Alm (Department of Economics, Tulane University); David L. Sjoquist (Department of Economics, Georgia State University)
    Abstract: The "Great Recession" lasted from December 2007 to June 2009, and it wreaked havoc on the revenues of state (and local) governments. While the U.S. economy has improved since the end of the Great Recession, state government revenues have in most cases still not completely recovered. We use various indicators to measure how different states have -- or have not -- recovered in the aftermath of the Great Recession, and we also attempt to explain why these different patterns of recovery have emerged. Overall, we find that some, but far from all, state governments have recovered the revenue they lost during the Great Recession. We also find that there is no single causal explanation for recovery that applies to all state governments.
    Keywords: recession, state government finance, local government finance
    JEL: H12 H20 H71
    Date: 2014–08
  5. By: Ramboll, The Evaluation Partnership and Europe Economics
    Abstract: The present study is motivated by the Commission’s assessment of the current VAT rates structure and by the need to understand: the extent to which publications delivered on physical means of support and in electronic format should be considered as substitutable products; the impact their current VAT rate differentiation has on the market; and the potential impact of any changes in VAT in order to reduce such rate differentials.
    Keywords: European Union, taxation, electronic publications, VAT reduced rate
    Date: 2015–03
  6. By: CPB Netherlands Bureau for Economic Policy Analysis
    Abstract: The objective of this study is to provide an economic assessment of the impact of the current VAT regimes and the likely effects of alternative VAT regimes in order to assist the Commission in making policy choices.
    Keywords: European Union, taxation, transport
    Date: 2015–03
  7. By: Larrimore, Jeff (Board of Governors of the Federal Reserve System (U.S.)); Mortenson, Jacob (Georgetown University); Splinter, David (Joint Committee on Taxation)
    Abstract: We use a large panel of federal income tax data to investigate intragenerational income mobility in the United States. We have two primary objectives. First, we explore the determinants of two-year changes in individual labor earnings and family incomes, such as job or industry changes, marriage, divorce, and geographic mobility. Second, we evaluate how federal income taxes stabilize or destabilize post-tax income changes relative to pre-tax changes. We find a relatively high degree of income mobility, with almost half of workers exhibiting earnings increases or decreases of at least 25 percent, and two-fifths of tax units experiencing income changes of this magnitude. Male and female labor income mobility patterns are remarkably similar, though marriage is associated with earnings gains among men, but is associated with modest earnings declines among women. We also observe that large income gains are most likely among families that add workers - either through marriage or through a second family member entering the workforce.
    Keywords: Administrative data; income mobility; post-tax income
    JEL: D31 H24
    Date: 2015–07–30
  8. By: Stefania Ottone; Ferruccio Ponzano; Giulia Andrighetto
    Abstract: In this paper we study how people from different European countries would react, in terms of tax compliance, to institutional changes. We choose an experimental setting and we focus on two features of the tax system – efficiency and tax rate. We develop our analysis in three countries characterized by different systems: Italy, Sweden, UK. The main finding is that participants from different countries react with the same intensity to efficiency changes but not to increases in the tax rate. In all countries tax compliance decreases as tax rate increases, but the reaction is stronger in Italy and softer in UK. Policy implications – mostly focused on fiscal harmonization - follow.
    Keywords: tax compliance, fiscal harmonization, cross-country comparison, efficiency, tax rate
    JEL: C9 D31 H26
    Date: 2015–08
  9. By: Severin Borenstein; Lucas W. Davis
    Abstract: Since 2006, U.S. households have received more than $18 billion in federal income tax credits for weatherizing their homes, installing solar panels, buying hybrid and electric vehicles, and other "clean energy" investments. We use tax return data to examine the socioeconomic characteristics of program recipients. We find that these tax expenditures have gone predominantly to higher-income Americans. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the program aimed at electric vehicles, where we find that the top income quintile has received about 90% of all credits. By comparing to previous work on the distributional consequences of pricing greenhouse gas emissions, we conclude that tax credits are likely to be much less attractive on distributional grounds than market mechanisms to reduce GHGs.
    JEL: D30 H23 H24 H50 Q41 Q48
    Date: 2015–07
  10. By: John Cawley; David Frisvold
    Abstract: One of the most commonly-proposed policies to address the high prevalence of obesity is a tax on energy-dense foods, in particular sugar-sweetened beverages (SSBs). This is based on the assumption that such taxes are largely passed through to consumers in the form of higher retail prices, leading to reduced consumption. However, relatively little is known about the extent to which taxes on SSBs are in fact passed through to consumers. We estimate the pass-through of the first city-level tax on SSBs in the U.S., which was enacted by the voters of Berkeley, California in November, 2014. We collected the prices of various brands and sizes of SSBs and other beverages before and after the implementation of the tax from a near-census of convenience stores and supermarkets in Berkeley, California. We also collected prices from stores in a control city: San Francisco, where in 2014 a similar voter referendum failed despite majority support. Estimates from difference-in-differences and other models consistently indicate that there was relatively little pass through of the Berkeley SSB tax to consumers; across brands and sizes, we estimate that retail prices rose by less than half of the amount of the tax. This is in contrast to much of the previous literature on the pass-through of taxes, which tended to find full or even overshifting of taxes.
    JEL: H2 H22 H71 I1 I12 I18
    Date: 2015–08
  11. By: James Alm (Department of Economics, Tulane University); Timothy R. Hodge (Department of Economics, Allegheny College); Gary Sands (Urban Planning Program, Wayne State University \end{minipage}); Mark Skidmore (Department of Agricultural, Food and Resource Economics, and Department of Economics, Michigan State University)
    Abstract: As the country reemerges from the real estate crisis, the City of Detroit, Michigan continues to struggle, and is currently in the midst of bankruptcy proceedings. Falling property values have led to significant reductions in property tax revenues. In addition, the rate of property tax delinquency in Detroit is 48 percent, resulting in uncollected tax revenues of about 20 percent. This high rate of tax delinquency results from a confluence of factors including limited tax enforcement, feelings of tax inequity, and failure to provide public services, all of which have contributed to a breakdown in the social contract between the City and its residents. In this paper we develop a theoretical model of the individual decision to become delinquent on one’s property tax payments. We then use detailed parcel-level data to evaluate the factors that affect both the probability that a property owner is tax delinquent and, conditional upon delinquency, the magnitude of the delinquency. Our estimates show that properties that have lower value, longer police response times, are non-homestead (non-owner occupied residential properties), have a higher statutory tax rate, have a higher assessed value relative to sales price, are owned by a financial institution or by a Detroit resident, are delinquent on water bills, and for which the probability of enforcement is low are more likely to be tax delinquent These findings can be used to inform policies targeted at improving tax compliance within the City.
    Keywords: property tax, delinquency, tax compliance
    JEL: H26 H71
    Date: 2015–08
  12. By: James Alm (Department of Economics, Tulane University)
    Abstract: Tunisia's tax system has undergone significant structural reforms over the last several decades. Even so, its structure exhibits some major flaws, shortcomings that spill over to and affect the performance of the overall Tunisian economy. Further, the tax system continues to underperform in some fundamental ways, ways that also affect the rest of the economy. Finally, the structure of the Tunisian tax system has some notable shortcomings. This paper discusses these issues. It presents details of the main taxes, it analyzes several main features of this tax system, and it suggests various specific tax reforms that can be introduced both in the short term and in the longer term.
    Keywords: Tunisia, tax reform
    JEL: H20 H24 H25 H87
    Date: 2015–08
  13. By: James Alm (Department of Economics, Tulane University); Mir Ahmad Khan (Federal Board of Revenue, Government of Pakistan)
    Keywords: corporate income tax, effective tax rate, tax reform
    JEL: H20 H25 H32 H87
    Date: 2015–08

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