nep-pub New Economics Papers
on Public Finance
Issue of 2015‒11‒07
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Positive Theory of Tax Reform By Ilzetzki, Ethan
  2. Capital taxation and imperfect competition: ACE vs. CBIT By Kurt R. Brekke; Armando J. Garcia Pires; Dirk Schindler; Guttorm Schjelderup
  3. Commodity taxation and regulatory competition By Simone Moriconi; Pierre M. Picard; Skerdilajda Zanaj
  4. Economic integration and interdependence of tax policy By Holzmann, Carolin; von Schwerin, Axel
  5. Tax competition’s role in economic development By Zakariya Chabani; Mona Hamed
  6. Business in the United States: Who Owns it and How Much Tax Do They Pay? By Michael Cooper; John McClelland; James Pearce; Richard Prisinzano; Joseph Sullivan; Danny Yagan; Owen Zidar; Eric Zwick
  7. Behavioral Responses to Taxation: Cigarette Taxes and Food Stamp Take-Up By Kyle Rozema; Nicolas Ziebarth

  1. By: Ilzetzki, Ethan
    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 reform. 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: 2015–11
  2. By: Kurt R. Brekke (Norwegian School of Economics); Armando J. Garcia Pires (Norwegian School of Economics); Dirk Schindler (Norwegian School of Economics); Guttorm Schjelderup (Norwegian School of Economics)
    Abstract: This paper studies the market and welfare effects of two main tax reforms – the Comprehensive Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). Using an imperfect-competition model for a small open economy, it is shown that the well-known neutrality property of ACE does not hold. Both corporate tax regimes distort market entry and equilibrium prices. A main result is that a small open economy should levy a positive source tax on capital in markets with free firm entry. Which tax system is better from a welfare point of view, depends on production technology, the competitive effects of ACE and CBIT, and whether entry is excessive or suboptimal at the given corporate tax rate. Imposing tax revenue neutrality yields a higher corporate tax rate with ACE, which increases the scope for CBIT to be welfare improving.
    Keywords: Optimal corporate taxation, corporate tax reform, imperfect competition, ACE, CBIT
    JEL: D43 H25
    Date: 2015
  3. By: Simone Moriconi (Universita Cattolica del Sacro Cuore & University of Luxembourg, CREA); Pierre M. Picard (University of Luxembourg, CREA & Université Catholique de Louvain, CORE); Skerdilajda Zanaj (University of Luxembourg, CREA)
    Abstract: This paper studies competition in commodity taxation and product market regulation between trading partners. To explain the strategic interaction between governments and regulators, we present a two-country general equilibrium model in which destination-based commodity taxes finance public goods and product market regulation affects the number of firms in the market. We provide empirical evidence based on data for 21 OECD countries over the 1990-2008 period. Our results suggest that commodity taxation and product market regulation are interdependent policies. We confirm the absence of strategic interaction in commodity taxation between governments. Finally, we show that domestic regulation has a negative effect on domestic commodity taxation and that product market regulation is a strategic complement policy.
    Keywords: Regulation, commodity tax, strategic interactions
    JEL: F0 H1 H7 H87 L5
    Date: 2015
  4. By: Holzmann, Carolin; von Schwerin, Axel
    Abstract: This paper provides empirical evidence for interdependence of jurisdictions' tax policies. We study tax policy interdependence between municipalities in the economically integrated European Metropolitan Area Frankfurt/Rhein-Main, that spreads across two German states, Hesse, and Rhineland-Palatinate. For empirical identification, we exploit two reforms in the Hessian local fiscal equalization scheme in the 1990s that induced quasi-experimental variation in Hessian metropolitan municipalities' business tax rates. In response to the Hessian metropolitan municipalities' tax rate increase, Rhineland-Palatine metropolitan municipalities increase their local business tax rates more moderately as compared to a matched control group of Rhineland-Palatine non-metropolitan municipalities. We argue that primarily tax competition considerations drive the results, as the average tax-rate differential between metropolitan municipalities in Rhineland-Palatinate and Hesse stays stable during the analysis period. We conclude that an arguably strong economic integration of municipalities seems a key determinant for the interdependence of their tax policies.
    Keywords: fiscal interdependence,tax mimicking,local business tax,tax competition,fiscal equalization schemes
    JEL: H20 H71 H77
    Date: 2015
  5. By: Zakariya Chabani (Istanbul University, Social Sciences Inst, Economics Faculty); Mona Hamed (Istanbul University, Social Sciences Inst, Economics Faculty)
    Abstract: Many theories of tax competition views that competition leads to inefficiently low tax rates and public expenditure levels. However, more recently other theories have been done in order to investigate the desirable effects of tax competition. Such as the benefices of raising total tax intake due to low corporate tax rates stimulating economic growth. Tax competition in Europe is a little bit different from international tax competition because we have to take in consideration the behavior of economic agents and public institutions in a specific geographic, political, economic and legal setting. This paper describes some approaches to extract the potential benefits of tax competition in order to develop European economy; we will see how tax competition handles inefficiencies in both the private sector and the public sector in Europe. We will also discuss how tax competition effects may represent important changes in the distribution of income.
    Keywords: Tax Competition, European Economy, Economy Development, Income Distribution
    Date: 2015
  6. By: Michael Cooper; John McClelland; James Pearce; Richard Prisinzano; Joseph Sullivan; Danny Yagan; Owen Zidar; Eric Zwick
    Abstract: “Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980's low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher.
    JEL: D31 D33 E25 E62 H2 H22 H25 M2
    Date: 2015–10
  7. By: Kyle Rozema; Nicolas Ziebarth
    Abstract: This paper investigates a previously unexplored behavioral response to taxation: whether smokers compensate for higher cigarette taxes by enrolling in food stamps. First, we show theoretically that increases in cigarette taxes can induce food stamp take-up of non-enrolled, eligible smoking households. Then, we study the theoretical predictions empirically by exploiting between and within-household variation in food stamp enrollment from the Current Population Survey, as well as data from the Consumer Expenditure Survey. The empirical evidence strongly supports the model predictions. Higher cigarette taxes increase the probability that low-income smoking households take-up food stamps.
    Keywords: cigarette taxes, food stamp take-up, tax pass-through rate, unintended consequences
    JEL: L66 H21 H23 H26 H71 I18
    Date: 2015–10

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