nep-pub New Economics Papers
on Public Finance
Issue of 2016‒03‒17
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation for the Alleviation of Working-Poverty When Domestic Work is Rewarded By Xi CHEN; Ioana SALAGEAN; Benteng ZOU
  2. Is Taxing Waste a Waste of Time? Evidence From a Supreme Court Decision By Stefano Carattini; Andrea Baranzini; Rafael Lalive
  3. Yardstick Competition and Tax Competition -Intergovernmental Relations and Efficiency of Public Goods- By Yasuyuki Nishigaki; Hideya Kato
  4. Tackling Spillovers by Taxing Corporate Income in the European Union at Source By Sijbren Cnossen
  5. A comparison of nominal and indexed debt under fiscal constraints By Beetsma, Roel; Westerhout, Ed

  1. By: Xi CHEN (STATEC); Ioana SALAGEAN (STATEC); Benteng ZOU (CREA, Université de Luxembourg)
    Abstract: The increase in income needed for working households to escape relative poverty may be achieved either by households supplying more hours of paid work on the labor market, or by policy makers adjusting income taxation, minimum wages and social transfers targeted at working households. While past work has given consid- erable attention to the latter policy instruments, theoretical work on how income taxation could minimize working-poverty is scarce. Our study aims to fill this gap. Unlike the traditional optimal income taxation literature, which considers that households allocate time only between consumption and leisure, we explicitly model households’ decisions as including domestic work, which is a social contri- bution and should be rewarded. This new framework highlights (i) the importance of emphasizing the difference between domestic work and real leisure and, (ii) the policy implications of non-market time allocation.
    Keywords: Working-poverty, time allocation, optimal income taxation, household-public goods.
    JEL: H21 I32 H24
    Date: 2016
  2. By: Stefano Carattini; Andrea Baranzini; Rafael Lalive
    Abstract: Many people are against a garbage tax even though it often works. We study how a Supreme Court decision, mandating Vaud, a region of Switzerland, to implement a tax on garbage, affects garbage production and beliefs about the tax. Our empirical approach exploits that parts of Vaud already implemented a garbage tax before the mandate, allowing us to adopt a difference-in-differences approach. Pricing garbage by the bag (PGB) is highly effective, reducing unsorted garbage by 40% (arc-elasticity of -0.3), increasing recycling of aluminum and organic waste, without negative spill-overs on adjacent regions. We also find that people are very concerned with PGB ex ante, but implementing PGB reduces concerns with effectiveness and fairness substantially. After implementing PGB, people intend to vote for an up to 70% higher garbage tax compared to before PGB. Taxing garbage generates benefits worth 36 % of garbage management costs.
    Date: 2016–02
  3. By: Yasuyuki Nishigaki (Ryukoku University); Hideya Kato (Ryukoku University)
    Abstract: Several branches of the literature focus on the advantages of the provision of public goods by a local government. Tiebout (1956) indicated that “voting with feet†leads to the optimal provision of local public goods if residents can emigrate from one municipality to another to maximize utility. Due to the free mobility of residents, local governments exhibit an inter-related performance in a competitive environment and are disciplined to achieve efficient provision of public goods, although rather unrealistic conditions, including perfect information and “free mobility†of residents, are pre-requested.The theory of local yardstick competition, in the principal–agent setting with asymmetric information, states that the comparison of the public service level and tax rates of a government with that of nearby localities can provide a useful instrument to assess a government’s performance. By comparing the performance of similar jurisdictions, voters can elect good politicians and send non-performers packing. Due to such a yardstick comparison of residents, local governors are disciplined to exert maximum efforts toward supplying public goods (Besley and Case 1996, Besley and Smart 2007), although they fail in the optimal provision of public goods (Nishigaki et al. 2015).Furthermore, a political inter-relation among neighboring jurisdictions causes interdependence in policy decisions and mimicking of policy variables or tax rates in the yardstick competition. This interdependence of policy or tax rates caused by informational externality is frequently used as evidence of yardstick competition in empirical studies (Besley and Case 1996, Revelli 2006, Nishigaki et al. 2014).Tax competition among local governments, on the other hand, addresses interaction due to inter-jurisdictional mobility of the tax base. By using a competitive two-region model, studies have indicated that an unfavorable externality of loss in the tax base causes strategic behavior in tax setting and an undersupply of public goods arises as a result of intergovernmental competition (Wildersin 1988, Brueckner and Saavedra 2001). These studies have also indicated that even competition among benevolent governments with full information leads to unfavorable results.By introducing the production of private and public goods using the inter-regionally mobile factor of capital stock, this paper investigates tax competition in a yardstick competition model. The harmful effects of under-provision of public goods caused by tax competition and political competition are synthesized in the yardstick equilibrium. Furthermore, it is indicated that the externality caused by the loss in capital stock is internalized through the informational externality of the yardstick comparison.
    Keywords: Local Public Goods; Asymmetric Information; Intergovernmental Externality; Yardstick Competition; Tax Competition
    JEL: D72 H41 H71
  4. By: Sijbren Cnossen
    Abstract: This paper surveys and evaluates the corporation tax (CT) systems of the Member States of the European Union on the basis of a comprehensive taxonomy of actual and potential regimes, which have as their base either profits, profits and interest, or economic rents. The current regimes give rise to various instate and interstate spillovers, which violate the basic tenets – neutrality and subsidiarity – of the single market. The trade-offs between the implications of these tenets – harmonization and diversity, respectively – can be reconciled by a bottom-up, reversible strategy of strengthening source-based taxation and approximating tax rates. The strategy starts with dual income taxation, proceeds with final source withholding taxes and rate approximation, and is made complete by comprehensive business income taxation. Common base taxation, if desired, should probably be left to the Member States themselves.
    JEL: F23 H25 H26 H87
    Date: 2016–02
  5. By: Beetsma, Roel; Westerhout, Ed
    Abstract: This paper makes a welfare comparison between the issuance of price-indexed and nominal public debt in the presence of fiscal constraints, viz. a debt constraint, a deficit constraint and a combination of both. Distortionary taxes or public consumption are regulated to avoid the violation of the relevant fiscal constraint(s). Under a debt constraint indexed debt is generally preferred, while under a deficit constraint the results are more mixed. Introducing inflation persistence and raising the maturity of the debt tends to increase the magnitude of the welfare differences between the two types of debt. Welfare differences are further affected by the degree to which public consumption and tax revenues are indexed to actual versus structural nominal GDP.
    Keywords: debt maturity.; deficit; fiscal constraints; indexed debt; inflation (persistence); nominal debt; public consumption; tax revenues; wage growth; welfare
    JEL: E62 H62 H63
    Date: 2016–02

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