nep-pub New Economics Papers
on Public Finance
Issue of 2015‒11‒15
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Changing Social Preferences and Optimal Redistributive Taxation By Jang-Ting Guo; Alan Krause
  2. Voluntary Provision of Public Knowledge Goods: Group-Based Social Preferences and Coalition Formation By Tom Dedeurwaerdere; Paolo Melindi-Ghidi; Willem Sas
  3. Tradable Permits in Cost–Benefit Analysis By Johansson, Per-Olov
  4. Fiscal policy and economic performance: A review of the theoretical and empirical literature By Halkos, George; Paizanos, Epameinondas
  5. Do Payroll Taxes in the United States Create Bunching at Kink Points? By David Powell
  6. Individual Tax Rates and Regional Tax Revenues: A Cross-State Analysis By Hakan Yilmazkuday
  7. Bypassing progressive taxation: fraud and base erosion in the Spanish income tax (1970-2001) By Sara Torregrosa

  1. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Alan Krause (University of York)
    Abstract: We examine a dynamic model of optimal nonlinear taxation of labor income and savings, in which there are two political parties: left-wing and right-wing. The parties differ only in their redistributive preferences, with the left-wing party having a stronger preference for redistribution. Our analysis explicitly considers the possibility that society's preference for redistribution may change, as reflected in its future voting behavior. The incumbent government respects the possibility that society's preference may change, and sets taxes to maximize expected social welfare. Our main result is that an incumbent left-wing (resp. right-wing) government will implement a regressive (resp. progressive) savings tax policy. The incumbent government implements this policy not out of self interest, but to accommodate the redistributive goals of the opposing party.
    Keywords: Nonlinear Taxation, Redistribution, Normative Taxation.
    JEL: H21 H24
    Date: 2015–11
  2. By: Tom Dedeurwaerdere (Université Catholique de Louvain and Fonds National de la Recherche Scientifique (FNRS), Biogov Unit); Paolo Melindi-Ghidi (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, GREQAM); Willem Sas (Center for Economics Studies (CES), KU Leuven)
    Abstract: In this paper we develop a private-collective model of voluntary public knowledge production, where group-based social preferences have an impact on coalition formation. Our theoretical model builds on the large empirical literature on voluntary production of pooled public knowledge goods, including source code in communities of software developers or data provided to open access data repositories. Our analysis shows under which conditions social preferences such as 'group belonging' or 'peer approval' influence stable coalition size, as such rationalising several stylized facts emerging from large scale surveys of Free/Libre/Open-Source software developers (David and Shapiro, 2008), previously unaccounted for. Furthermore, heterogeneity of social preferences is added to the model to study the formation of stable, but mixed coalitions.
    Keywords: public knowledge goods, coalition formation, private-collective model, group belonging, peer approval, open source software
    JEL: C70 D71 H40 L17
    Date: 2015–11–03
  3. By: Johansson, Per-Olov (Stockholm School of Economics & CERE)
    Abstract: There is no consensus with respect to handling of tradable permits in cost–benefit analysis. The leading (organizational/governmental) manuals in North America, Europe, Asia, and Australia handle permits in different ways or ignore them. This paper offers a brief discussion of the properties of cap-and-trade systems, and contrast these to the properties of emission charges. The paper then turns to cost–benefit rules for projects using fossil fuels in a cap-and-trade system. The focus is on small projects but the paper also briefly addresses the case where a project significantly affect prices. As a service to the reader the small project rules are contrasted to the much more familiar and standardized ways of handling emission charges in cost–benefit analysis. Finally, the consequences of market power in cap-and-trade markets are briefly addressed.
    Keywords: Cost–benefit analysis; greenhouse gases; tradable permits; emission charges; market power.
    JEL: H21 H23 H41 H43 I30 L13
    Date: 2015–11–07
  4. By: Halkos, George; Paizanos, Epameinondas
    Abstract: The economic implications of government expenditure have been shown to be significant and broad. In particular, government spending has been shown to enhance long-run economic growth by increasing the level of human capital and Research and Development (R&D) expenditure, and by improving public infrastructure. On the other hand, there is evidence that a greater size of government spending may be less efficient and therefore not necessarily associated with a better provision of public goods and higher levels of economic growth. Moreover, it is likely that the size of government expenditure and its composition are associated with key aspects of the quality of growth, such as income inequality and environmental sustainability. This paper presents a review of the theoretical and empirical literature on the relationship between fiscal policy and economic activity, both in terms of long-run economic growth and short-term output fluctuations. In general, empirical evidence on these relationships is not robust and remains inconclusive.
    Keywords: Fiscal policy; Economic growth; Government Expenditure; Taxation.
    JEL: E62 H2 H5 O44 O47 Q01 Q56
    Date: 2015–11
  5. By: David Powell (RAND)
    Abstract: Much of the literature on labor supply responsiveness to taxes studies the effects of payroll and income taxes together, usually using income tax changes to identify effects. There is less research on how individuals respond to payroll taxes specifically. Given the salience of the payroll tax relative to other income taxes, it is possible that taxpayers respond differentially than income tax elasticities may suggest. Using data from the Social Security Administration, I exploit two recent short-term changes in payroll taxes to study whether labor earnings responded. The Making Work Pay Tax Credit reduced the payroll tax by 6.2 percentage points up to $6,451 ($12,903 for couples) of earnings in 2009 and 2010. I test for bunching at this kink. In 2011, payroll taxes were reduced by 2 percentage points, changing the incentives to bunch at the taxable earnings maximum. While many papers on bunching must make assumptions on the distribution of earnings in the absence of taxes, an advantage of studying changes in payroll taxes is that it is possible to observe the distribution in different years under different tax regimes. I find evidence of bunching induced by the payroll tax changes. I estimate a tax elasticity of labor earnings of 0.08 at the taxable earnings maximum, suggests that policy proposals to raise or eliminate the payroll tax cap should consider labor supply behavioral responses to this policy. I also estimate larger responsiveness to the Making Work Pay Tax Credit.
    Date: 2015–09
  6. By: Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper analyzes the effects of state-level personal tax rates on state tax revenue and individual welfare. The policy analysis based on a general equilibrium model suggests that tax revenues would benefit from higher wage-income, sales or property taxes, while any increase in dividend-income tax would result in a reduction of revenues. It is also shown that individuals would suffer from an increase in state-level wage-income tax, dividend-tax or sales tax, while they would benefit from an increase in property taxes. The heterogeneity across states is determined by a TaxIndex, a weighted average of initial taxes at the state level.
    Keywords: Regional Taxes, State Tax Revenue, Individual Welfare
    JEL: H24 H71 R13 R51
    Date: 2015–11
  7. By: Sara Torregrosa (Universitat de Barcelona)
    Abstract: In this paper I estimate under-assessment of incomes in the Personal Income Tax during the years following its introduction in Spain. The methodology combines an analysis of discrepancy with National Accounts and an econometric exercise, which follows and slightly modifies the Feldman and Slemrod (2007) procedure, based on the relation of reported charitable donations with the composition of income in tax micro-data. Both calculations show that concealment of income differed substantially across sources and levels, with better compliance at the bottom of the distribution of taxpayers. Because of this, fraud made the tax less progressive than it was on paper. Compliance improved over the next decades, but the overall levels were still far from those attained in developed countries, because of lack of administrative capacity or political will to enforce the new regulation. In this way, general, comprehensive income taxation was hardly a reality 20 years after its introduction.
    Keywords: Tax evasion, base erosion, under-reporting, progressivity, personal income tax
    JEL: H23 H24 H26 N44
    Date: 2015

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