nep-pub New Economics Papers
on Public Finance
Issue of 2015‒09‒11
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation with Behavioral Agents By Emmanuel Farhi; Xavier Gabaix
  2. Tax evasion as a determinant of corruption: a game-theoretical analysis By Sokolovska, Olena; Sokolovskyi, Dmytro
  3. Facing Demographic Challenges: Pension Cuts or Tax Hikes By George Kudrna; Chung Tran; Alan Woodland
  4. The Response of Deferred Executive Compensation to Changes in Tax Rates By Aspen Gorry; Kevin A. Hassett; R. Glenn Hubbard; Aparna Mathur
  5. VAT efficiency in the countries worldwide By Sokolovska, Olena; Sokolovskyi, Dmytro
  6. Environmental tax reform in a federation with rent-induced migration By Jean-Denis Garon; Charles Séguin
  7. Estimating the Effects of South Africa's Youth Employment Tax Incentive – An Update By Vimal Ranchhod; Arden Finn
  8. The End of the Flat Tax Experiment in Slovakia By Michal Horváth; Matus Senaj; Zuzana Siebertova; Norbert Svarda

  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.
    JEL: D03 H0
    Date: 2015–09
  2. By: Sokolovska, Olena; Sokolovskyi, Dmytro
    Abstract: We consider a static non-cooperative game theoretic model of tax evasion. Some concepts concerned with strategies of interaction between economic agents are formalized in order to determine further possible presence of corrupt practices.
    Keywords: tax evasion, game theory, corruption, behavior
    JEL: C70 D73 H26
    Date: 2015
  3. By: George Kudrna; Chung Tran; Alan Woodland
    Abstract: In this paper, we investigate two .fiscal policy options to mitigate fiscal pressure arising from an ageing of Australian population: pension cuts or tax hikes. Using a computable overlapping generations model, we .nd that while the two policy options achieve the same .fiscal goal, the macroeconomic and welfare outcomes differ significantly. Future generations prefer pension cuts, whereas current generations prefer tax hikes to .finance age-related government spending commitments. Interestingly, taxing consumption or income results in opposing effects on macroeconomic aggregates and welfare across different skill types of households. Increases in the consumption tax rate have positive effects on labour supply, domestic assets and output per capita (similarly to pension cuts), but reduce the welfare of low income households most. Conversely, increases in progressive income or payroll taxes have negative effects on most macroeconomic aggregates but reduce the welfare of low income households least. Our results highlight the intra- and inter-generational conflicts of interest and political constraints when implementing any structural fiscal reforms.
    Keywords: : Demographic Transition, Fiscal Cost, Fiscal Policy, Welfare, Overlapping Generations, Dynamic General Equilibrium
    JEL: H2 J1 C68
    Date: 2015–04
  4. By: Aspen Gorry; Kevin A. Hassett; R. Glenn Hubbard; Aparna Mathur
    Abstract: Given the increasing use of stock options in executive compensation, we examine how taxes influence the choice of compensation and document that income deferral is an important margin of adjustment in response to tax rate changes. To account for this option in the empirical analysis, we explore deferral by estimating how executives’ choice of compensation between current and deferred income depends on changes in tax policy. Our empirical results suggest a significant impact of taxes on the composition of executive compensation.
    JEL: G30 H24 H32 J33
    Date: 2015–09
  5. By: Sokolovska, Olena; Sokolovskyi, Dmytro
    Abstract: The article aims to estimate the efficiency of value-added tax (VAT) collection in the countries worldwide. In a large part of developing and transition countries VAT performs primarily fiscal function, being the main source of budget revenue (for example in 2014 in Ukraine the revenue obtained from VAT was 51% of total tax revenue, in Moldova it achieved 58,2%). At the same time the shadow economy particularly in form of corruption and tax evasion that exists in these countries leads to a considerable tax gap which in turns reduces VAT efficiency. So, the present study intends to define the VAT efficiency ratio in countries of the world. Preliminary theoretical and methodological analysis allowed us to use for calculations a modification of widespread formula, considering in a certain way a tax evasion process. We investigated the dependence between VAT efficiency ratio and size of shadow sector and level of corruption in countries. This research will allow further investigation of the strategies for establishing of optimal VAT rates depending on efficiency of its levying and size of taxpayers which in turns will contribute to raising efficiency of VAT administration, to the reduction of shadow sector and to the economic growth.
    Keywords: VAT, efficiency, shadow sector, corruption
    JEL: C10 D73 E26 H21
    Date: 2015
  6. By: Jean-Denis Garon (ESG-UQAM, CESIfo and CIRPEE); Charles Séguin (ESG-UQAM and CIREQ)
    Abstract: We study the welfare effects of a revenue-neutral green tax reform in a federation. The reform consists of increasing a tax on a polluting input and reducing that on labor income. Households are fully mobile within the federation. Regions are unequally endowed with a nonrenewable natural resource. Resource rents are owned by regions and are redistributed to citizens on a residence basis, which generates a motive for inefficiently relocating to the resource-rich jurisdiction. Since the resource-poor region has a higher marginal product of labor than does the resource-rich region, the tax reform mitigates the scope of inefficient migration. This positive welfare effect may significantly reduce abatement costs of pollution and calls for higher environmental tax, as compared with a model where migration is assumed away.
    Keywords: Federalism, Environment, Taxation, Equalization, Mobility
    JEL: D62 H21 H23 H77
    Date: 2015–09
  7. By: Vimal Ranchhod (SALDRU, School of Economics, University of Cape Town); Arden Finn (SALDRU, School of Economics, University of Cape Town)
    Abstract: Our previous study of the effects of South Africa's Employment Tax Incentive (ETI) (Ranchhod and Finn, 2014) found that the ETI did not have a statistically significant impact on youth employment probabilities in the first six months of 2014. In this update we extend the period of analysis from six months to all twelve months of 2014 and find that this does not alter our qualitative findings. These are that the ETI has not resulted in a statistically significant change in the probability of young people finding jobs, despite its cost of R2 billion over the first year of its existence. Furthermore, there is no evidence to suggest that the introduction of the ETI resulted in an increase in the level of churning for youth in the labour market.
    Keywords: Youth, unemployment, South Africa, wage subsidy, employment tax incentive
    JEL: H25 H32 J38
    Date: 2015
  8. By: Michal Horváth (University of York); Matus Senaj (Council for Budget Responsibility); Zuzana Siebertova (Council for Budget Responsibility); Norbert Svarda (Council for Budget Responsibility)
    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 a general equilibrium framework with search and matching frictions. Some recently implemented 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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