nep-pub New Economics Papers
on Public Finance
Issue of 2015‒12‒01
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal taxation and public provision for poverty reduction By Ravi Kanbur; Jukka Pirttilä; Matti Tuomala; Tuuli Ylinen
  2. Do better entrepreneurs avoid more taxes? By Laurent Bach
  3. Local Tax: A comparison of hypotheses By Patrizia Lattarulo; Alessandro Petretto
  4. Optimal pay-as-you-go social security with endogenous retirement By Miyazaki, Koichi
  5. Tax incentives and R&D: an evaluation of the 2002 UK reform using micro data By Irem Guceri
  6. The Effect of the Tax System as an Institutional Factor on the Business Structure in Europe By Bartha, Zoltan
  7. Searching for the inclusive tax grail: The distributional impact of growth enhancing tax reform in Ireland By Brendan O’Connor; Terence Hynes; David Haugh; Patrick Lenain
  8. Taxes, income and economic mobility in Ireland: New evidence from tax records data By Seán Kennedy; Yosuke Jin; David Haugh; Patrick Lenain

  1. By: Ravi Kanbur; Jukka Pirttilä; Matti Tuomala; Tuuli Ylinen
    Abstract: The existing literature on optimal taxation typically assumes there exists a capacity to implement complex tax schemes, which is not necessarily the case for many developing countries. We examine the determinants of optimal redistributive policies in the context of a developing country that can only implement linear tax policies due to administrative reasons. Further, the reduction of poverty is typically the expressed goal of such countries, and this feature is also taken into account in our model. We derive the optimality conditions for linear income taxation, commodity taxation, and public provision of private and public goods for the poverty minimization case, and compare the results to those derived under a general welfarist objective function. We also study the implications of informality on optimal redistributive policies for such countries, and comment on the potential for minimum wage regulation. The exercise reveals nontrivial differences in optimal tax rules under the different assumptions. The derived formulae also capture the sufficient statistics that the governments need to pay attention to when designing poverty alleviation policies.
    Keywords: redistribution, income taxation, commodity taxation, public good provision, poverty Creation-Date: 2015; Economic growth, Investments, Panel analysis, Productivity
  2. By: Laurent Bach (Stockholm School of Economics and Swedish House of Finance)
    Abstract: In this paper, we estimate why some firms strongly react to avoidance incentives given by nonlinear taxes and regulations while others don¡¯t. We measure avoidance using a kinkpoint in the French corporate income tax schedule and a notch in exposure to French labor regulation. We find that firm profitability is a strong predictor of avoidance: income tax elasticities are 30% bigger among firms in the top quintile of ROA than among firms in the bottom quintile; employment declines induced by the regulation notch are more than twice as big among the former group of firms as among the latter. Going further, we find that tax elasticities reflect in great part the speed of tax code learning by firms and that more profitable firms learn faster. We also find that firms¡¯ avoidance strategies are much more developed when management is more sophisticated and ownership structures are more concentrated. Overall, we conclude that a large part of firm heterogeneity in the strength of reaction to taxes and regulations reflects differences in the quality of governance rather than differences in firm technologies.
    Date: 2015
  3. By: Patrizia Lattarulo (Istituto Regionale per la Programmazione Economica della Toscana); Alessandro Petretto (Università di Firenze)
    Abstract: The progressive intensification of the tax burden at local scale which has taken place in the last few years as well as the want of stable resources by local bodies is urging a general reconsideration of the modalities in which Italian municipalities are financed. This work discusses the introduction of the Local Tax in Italy, and presents different hypotheses on how it should be devised. The first part recalls the theoretical principles underpinning a tax scheme aimed at financing municipal services and confirms the soundness of a real estate property tax; the second part illustrates the equity implications of the reform proposals meant to shift from the property tax to the Local Tax; the third part presents a comparison among the different types of local tax recommended in the current debate, drawing attention to the possible effects on the tax burden and on the balancing of local bodies’ budgets. The hypotheses compared are a “secondary” municipal property tax (Imposta Municipale Secondaria – IMU S), a “minimal” local tax; and a local tax that involves a partial or complete exemption for the main house. The first hypothesis has a poor effect, particularly as regards the goal of simplification, given the low amounts and the reduced number of municipalities involved, so that it does not seem appropriate as a means of local financing. The second one, which complies with vertical harmonization, modifies the taxable base of municipalities, thus implying a reform of their present organization, a fact that, considering the current budgetary difficulties, makes this the most complex of these hypothesis. The third one, which is the one privileged in the current debate, pursues the goals of equity; the present work analyzes the possible effects of the alternatives of partial versus total exemption for the main house and discusses the modalities to finance the manoeuvre. The financing of the exemption for the main house through transfer taxes is obviously the easiest and straightest way, but it lessens the tax autonomy, and thus the financial responsibility, of local governments. Conversely, financing the exemption with an increase of the property tax on secondary houses has a limited impact in terms of tax burden and municipal revenues, since the two amounts largely compensate each other. Then again, the distributive impact is quite uncertain. From a distribution point of view, this works underlines the efficacy of a system of permanent deductions as well as the prospective relevance of Land Registry’s reform.
    Keywords: taxation, local finance, real estate property taxes
    JEL: H31 H71
    Date: 2015
  4. By: Miyazaki, Koichi
    Abstract: This paper considers an overlapping-generations model with pay-as-you-go social security and retirement decision making by an old agent. In addition, the paper assumes that labor productivity depreciates. Under this setting, socially optimal allocations are examined. The first-best allocation is an allocation that maximizes welfare when a social planner distributes resources and forces an old agent to work and retire as she wants. The second-best allocation is an allocation that maximizes welfare when she can use only pay-as-you-go social security in a decentralized economy. The paper finds a range of an old agent’s labor productivity such that the first-best allocation is achieved in the decentralized economy. This differs from the finding in Micheland Pestieau [“Social security and early retirement in an overlapping-generations growth model”, Annals of Economics & Finance, 2013] that the first-best allocation cannot be achieved in the decentralized economy.
    Keywords: Overlapping-generations model, pay-as-you-go social security, endogenous retirement, depreciation of labor productivity, first-best allocation, second-best allocation
    JEL: D91 H21 H55 J26
    Date: 2015–07–02
  5. By: Irem Guceri (Oxford University Centre for Business Taxation)
    Abstract: The United Kingdom introduced an R&D tax incentive scheme rst for SMEs in 2000 and then for large rms in 2002, gradually increasing the generosity of both schemes after 2008. This study exploits the differences between companies with similar characteristics that were just above the size threshold for eligibility to the SME scheme and those that were just below, before and after the 2002 reform. This allows for a difference-in-differences approach to measure the (additional) impact of the tax incentives on firms around this size threshold. Treatment group firms are found to have increased their R&D spending by around 18 percent on average in response to the large company tax incentive, implying a user cost elasticity of -1.35. We do not find significant differences in this effect between sectors.
    Keywords: R&D, tax credits, difference-in-differences
    JEL: H25 O31
    Date: 2015
  6. By: Bartha, Zoltan
    Abstract: This chapter focuses on the influence of tax systems and taxation rules on the firm structure of the 28 European Union member economies. It is argued that higher taxes and more complex tax rules lead to smaller firms, and that, on the other hand reduces macroeconomic perfor-mance. It is found that the firm size and corporate tax rates are negatively correlated in case of medium-sized (R=-0.4; p=0.03) and large (R=-0.41; p=0.03) firms. Indications were found that higher transaction costs caused by taxation lead to smaller firms, as a significant negative correlation was found between the number of hours per year needed to administer tax pay-ments, and the share of large firms (R=-0.41 & p=0.03), and also between KPMG’s comment length (an indicator for tax system complexity) and the share of medium-sized firms’ turnover from the total turnover (R=-0.39 & p=0.045). More complicated tax rules might also cause a smaller proportion of firms to grow quicker, but the significance level of these relationships is not very convincing.
    Keywords: tax system; tax rate; institutions; firm size
    JEL: H21 L11
    Date: 2015–06–19
  7. By: Brendan O’Connor; Terence Hynes; David Haugh; Patrick Lenain
    Abstract: The economic literature suggests that a revenue-neutral shift of tax revenues from income taxes to property taxes would increase GDP per capita in the medium term. This paper analyses for Ireland the consequences of such a shift in the tax mix. In particular, it examines whether this can be carried out in a way that would neither undermine income distribution nor depress government revenue. Simulations using the ESRI tax-benefit model, SWITCH, suggest it is possible to achieve such a broadly revenue-neutral tax shift in a non-regressive way, while lowering marginal tax rates for most taxpayers. In particular, reductions in the Universal Social Charge would reduce marginal and average tax rates and have a positive impact for the income of most households. This could be funded by shifting the tax base toward residential properties, though this might have an adverse effect on income distribution, due to Ireland’s high rates of home ownership throughout the income distribution. The analysis shows that low income groups could be protected through the careful introduction of income-related supports, with revenue losses recovered through a more progressive property tax rate structure. Overall, the simulations show that a shift from labour to property tax can be pro-growth and pro-employment, without equity losses. The paper therefore suggests that tax reform can be inclusive.<P>A la recherche du graal de l'impôt inclusif : L'impact redistributif de la réforme de l'impôt pour améliorer la croissance en Irlande<BR>La littérature économique suggère qu'un transfert, neutre en termes de recettes fiscales, de l’impôt sur le revenu à l'impôt foncier augmenterait le PIB par habitant dans le moyen terme. Ce document analyse dans le cas de l’Irlande les conséquences d'un tel changement de la composition des recettes fiscales. En particulier, il examine si cela peut être effectué sans porter atteinte à la répartition des revenus et aux recettes du gouvernement. Des simulations faires à l'aide du modèle impôts-prestations sociales de ESRI, SWITCH, suggèrent qu'il est possible de faire un tel transfert d’impôt sans incidence sur les recettes, d'une manière non régressive, et tout en réduisant les taux marginaux d'imposition pour la plupart des contribuables. En particulier, réduire la charge sociale universelle permettrait de réduire les taux d'imposition marginaux et moyens et d’avoir un impact positif sur les revenus de la plupart des ménages. Cela pourrait être financé en transférant l’assiette fiscale vers les propriétés immobilières, bien que cela pourrait avoir un effet négatif sur la distribution des revenus en raison de taux élevés d’accès à la propriété immobilière en Irlande. L'analyse montre que les groupes à faible revenu pourraient être protégés en calibrant minutieusement les mesures de soutien au revenu des personnes concernées, mesures qui seraient elles-mêmes financées grâce à une structure plus progressive de l’imposition des propriétés immobilières. Au total, les simulations montrent que transférer l’assiette fiscale de la main-d'oeuvre à la propriété immobilière pourrait être favorable à la croissance et à l’emploi, sans pertes en termes d’équité. Le document suggère donc que la réforme fiscale peut être inclusive.
    Keywords: welfare, income tax, benefits, property tax, Ireland, tax, tax bases, Irlande, bien-être, croissance, simulations, impôt
    JEL: H21 H23 H24 H53 I31 I38
    Date: 2015–11–27
  8. By: Seán Kennedy; Yosuke Jin; David Haugh; Patrick Lenain
    Abstract: This paper analyses income inequality in Ireland using a new panel dataset based on the administrative tax records of the Revenue Commissioners for Ireland. High inequality at market incomes in Ireland by international standards appears to be driven by both ends of the income distribution. An analysis of income mobility over time shows it has been low at both ends of the income distribution, though it increased at the low end once the crisis began, reflecting the sharp deterioration of the labour market. The data confirms that the tax system is highly progressive at the high end of income distribution and the welfare system provides the most significant support to lower income deciles in Ireland. The redistributive function in the tax and benefit system was enhanced during the last decade, not only because more income support was necessitated with the crisis, but also because of steeper and more progressive tax rates. This working paper relates to the 2015 OECD Economic Survey of Ireland (<P>Les impôts, le revenu et la mobilité économique en Irlande : Nouvelles preuves à partir des données des dossiers fiscaux<BR>Ce document analyse l’inégalité de revenus en Irlande à l’aide d’un dataset panel construit à la base des déclarations fiscales du Revenue Commissioners de l’Irlande. La forte inégalité du revenu initial en Irlande par rapport aux normes internationales apparait être dirigée par les deux extrémités de la distribution des revenus. Une analyse de la mobilité économique (à travers de la distribution des revenus) dans le temps montre qu’elle était faible aux deux extrémités de la distribution des revenus, mais elle a accru à l’extrémité inférieure de la distribution une fois la crise a commencé, en reflétant la forte détérioration du marché du travail. Les données confirment que le système fiscal est hautement progressif à l’extrémité supérieure de la distribution des revenus et le système de protection sociale fournit le soutien le plus important au sein de déciles de revenu inférieurs en Irlande. Le fonctionnement redistributif du système d’imposition et de protection sociale a été renforcé dans la dernière décennie, non seulement car la crise a nécessité plus de soutien du revenu, mais aussi en raison des taux d’imposition rendus plus accentués et progressifs. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de Irlande 2015 ( ique-irlande.htm).
    Keywords: social benefits, income tax, income distribution, tax credit, impôt sur le revenu, distribution des revenus, prestations sociales
    JEL: D31 D63 E24 H24 H53
    Date: 2015–11–27

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