nep-pub New Economics Papers
on Public Finance
Issue of 2015‒10‒25
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Positive Theory of Tax Reform By Ethan Ilzetzki
  2. On Redistributive Taxation under the Threat of High-Skill Emigration By Alan Krause
  3. Risk Sharing in the Presence of a Public Good By Josef Schroth
  4. State and Local Sales Taxes and Business Activity in the United States By Saxon, Nicholas; Tosun, Mehmet S.; Yang, Jingjing

  1. By: Ethan Ilzetzki (Department of Economics, London School of Economics; Centre for Macroeconomics (CFM))
    Abstract: The political impediments to reform and the forces allowing its success are studied in a model where the tax base and statutory rate are separate instruments of tax policy. The model predicts that big bang reforms - large changes in the tax code - may be easier to enact than marginal reforms. Preferences over the tax base face a tipping point where even the beneficiaries from tax exemptions support re-form. At such a "reform moment", tax reform is Pareto improving. Politically feasible tax reform occurs when fiscal needs are large, but may nonetheless involve reductions in marginal tax rates. There is strategic complementary in lobbying for tax exemptions, resulting in multiple equilibria. Evidence from tax-base changes in a panel of OECD countries supports a number of the main predictions.
    JEL: D72 D78 H26
    Date: 2015–10
  2. By: Alan Krause
    Abstract: The increasing international mobility of high-skill individuals is often seen as posing a threat to domestic social welfare, by limiting the ability of governments to tax these individuals and redistribute to the poor. In this note, we examine a simple dynamic nonlinear income tax model without commitment. In this setting, it is shown that the threat of emigration by high-skill individuals facilitates redistribution and increases social welfare in the short run, and has no effect on social welfare over the long run.
    Keywords: nonlinear taxation; migration; commitment.
    JEL: H21 H24 F22
    Date: 2015–10
  3. By: Josef Schroth
    Abstract: This paper studies an economy where agents can spend resources on consuming a private good and on funding a public good. There is asymmetric information regarding agents’ relative preference for private versus public good consumption. I show how private good consumption should be coordinated across agents within each period to ensure efficient contributions to fund the public good. If agents contributed similar amounts in the past, then coordination takes the form of positively correlated contributions in the current period. If an agent contributed more in the past, then coordination prescribes state-contingent socially wasteful private good consumption in the current period for that agent.
    Keywords: Financial stability, Financial system regulation and policies, Fiscal Policy
    JEL: E62 H21 H23 H77 D82 D86
    Date: 2015
  4. By: Saxon, Nicholas (U.S. Census Bureau); Tosun, Mehmet S. (University of Nevada, Reno); Yang, Jingjing (University of Nevada, Reno)
    Abstract: There has been an increasing reliance on sales taxation in both the states and counties in the United States. In this paper, we are examining the relationship between state and local sales taxation and business activity in the U.S. by utilizing county-level data for the period 2002-2011. We have found significant negative association between the state and county combined sales tax rate and annual payroll of businesses particularly in the manufacturing sector. There is also evidence of spatial dependence particularly in the payroll response of businesses within the contiguous region. While we found no significant relationship with employment, there is also statistically significant negative association with retail establishments and small establishments with less than 10 employees. It is possible that businesses respond to a sales tax rate increase first, or more directly, by reducing payroll rather than employment. While the economic significance of these results, however, is not found to be overwhelmingly strong, policymakers should still pay attention particularly to how manufacturing businesses respond to sales tax rate tax changes in the form of changes in payroll, and the responses from the small retail establishments.
    Keywords: state and county sales tax, business activity, payroll, employment, number and size of establishments, United States
    JEL: H25 H71 H73 J21
    Date: 2015–10

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