nep-pub New Economics Papers
on Public Finance
Issue of 2016‒06‒25
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxing high-income earners: tax avoidance and mobility By Alejandro Esteller; Amedeo Piolatto; Matthew Rablen
  2. Environmental Taxation By Roberton C. Williams III
  3. Implementing Tax Coordination and Harmonization through Voluntary Commitment By Grégoire ROTA-GRAZIOSI
  4. Taxation, industry integration and production efficiency By Simone Moriconi
  5. Taxing cross-border intercompany transactions: are financing activities fungible? By Kayis-Kumar, Ann
  6. Saving and taxation in a voluntary pension system: Toward an agent-based model By Balazs Kiraly; Andras Simonovits
  7. Income Instability and Fiscal Progression By Garcia-Medina Cecilia; Jean-Francois Wen
  8. Optimal Automatic Stabilizers By Alisdair McKay; Ricardo Reis
  9. Does the Median Voter or Special Interests Determine State Highway Expenditures? Recent Evidence By Joshua Hall; Shree Baba Pokharel
  10. Endogenous Competence and a Limit to the Condorcet Jury Theorem By Bryan McCannon; Paul Walker
  11. The Power to Tax in Sub-Saharan Africa: LTUs, VATs, and SARAs By Christian EBEKE; Mario MANSOUR; Grégoire ROTA-GRAZIOSI
  12. The Long Run Impacts of Merit Aid: Evidence from California’s Cal Grant By Eric Bettinger; Oded Gurantz; Laura Kawano; Bruce Sacerdote

  1. By: Alejandro Esteller (Institute for Fiscal Studies and Barcelona Economics Institute, University of Barcelona); Amedeo Piolatto (Institute for Fiscal Studies and Barcelona Economics Institute, University of Barcelona); Matthew Rablen (Institute for Fiscal Studies and Brunel University)
    Abstract: The taxation of high-income earners is of importance to every country and is the subject of a considerable amount of recent academic research. Such high-income earners contribute substantial amounts of tax and generate signifi cant positive spillovers, but are also highly mobile: a 1% increase in the top marginal income tax rate increases out-migrations by around 1.5 to 3%. We review research into taxation of high-income earners to provide a synthesis of existing theoretical and empirical understanding. We o ffer various avenues for potential future theoretical and empirical research.
    Keywords: high-income earners, mobility, tax avoidance
    Date: 2016–04–22
  2. By: Roberton C. Williams III
    Abstract: This paper examines potential environmental tax policy reforms. It focuses primarily on a carbon tax, but also more briefly considers a range of other possible changes. These include revising or eliminating various energy and environmental tax credits and deductions (many of which might become unnecessary in the presence of a carbon tax), as well as changes to energy taxes that have substantial environmental implications (such as the federal gasoline tax). The paper draws on recent theoretical and empirical research to evaluate the effects of such reforms on tax revenue, pollution emissions, economic efficiency, and income distribution.
    JEL: H21 H22 H23 Q50 Q58
    Date: 2016–06
  3. By: Grégoire ROTA-GRAZIOSI (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: Pareto-improving tax coordination, and even tax harmonization, are Nash implementable between sovereign countries without any supranational tax authorities. Following Schelling's approach, we consider voluntary commitment, which constrains countries' respective tax rate choices. We develop a commitment game where countries choose their strategy sets in preliminary stages and play consistently during the final one. We determine the set of tax rates, which are implementable by commitment. This allows countries to reach Pareto-improving equilibriums. We also establish that complete tax harmonization may emerge as the subgame perfect Nash equilibrium of the commitment game as long as the asymmetry between countries remains limited. Our analysis contributes to the rationale of tax ranges and, more broadly, of non binding but self-enforcing commitments (not equivalent to cheap talk) in the context of tax competition.
    Keywords: Tax coordination, Commitment.
    JEL: C72 H30
    Date: 2016–06
  4. By: Simone Moriconi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: Taxes levied on production processes (e.g. VAT), are today a very important source of government revenues in developed economies. Theories of optimal taxation conclude that these taxes are detrimental to production efficiency, when firms operate in perfectly competitive markets. These theories draw on the neoclassical approach, which regards firms as single production units. The present paper investigates the effects of taxation on production efficiency, accounting for the organization of an industry. The model shows that a lump-sum tax does not have any effect on the organization of the industry, while a non lump-sum tax can be designed that induces an organizational change of the industry. The paper shows that the effect of this ”tax induced organizational change” on production efficiency ultimately depends on the characteristics of the market.
    Keywords: taxation, organizational change, vertical integration, and production efficiency.
    JEL: H21 L22 H32
    Date: 2016–06
  5. By: Kayis-Kumar, Ann
    Abstract: The Organisation for Economic Cooperation and Development (‘OECD’) is currently considering best practice approaches to designing rules to prevent base erosion and profit shifting (‘BEPS’) by multinational enterprises (‘MNEs’). However, the OECD makes a distinction between combating BEPS and reducing distortions between the tax treatment of various methods of financing. Yet, an unequal tax treatment can create distortions, which incentivises tax planning behaviour. Accordingly, this paper aims to improve the tax design of anti-avoidance rules governing MNEs’ cross-border intercompany deductions by introducing the concept of the tax-induced cross-border funding bias. To date, the literature has focussed on the debt bias, which arises from the distortion in the tax treatment between debt and equity financing. On the other hand, the funding bias also includes licensing and leasing activities in addition to debt and equity financing. This presents a novel contribution to the literature. This paper examines the conceptual case for why is might be appropriate and feasible to restrict the tax deductibility of cross-border intercompany interest, dividends, royalties and lease payments given their mobility and fungibility. Specifically, it examines whether it is preferable for MNEs to be subject to economic rent taxation, as is attained through reform proposals such as the Allowance for Corporate Equity (‘ACE’), in this context. This presents a novel proposal for taxing cross-border intercompany economic rents which aligns with the main aim of corporate tax harmonisation; namely: to reduce, if not remove, distortions relating to the taxation of cross-border intercompany activities.
    Keywords: OECD, BEPS, Transfer pricing, Multinational, Economic rent taxation
    JEL: C6 C61 H2 H20 H25 H26 K0 K00
    Date: 2015–07–24
  6. By: Balazs Kiraly (Institute of Physics of Budapest University of Technology, Budapest); Andras Simonovits (Institute of Economics - Centre for Economic and Regional Studies, Hungarian Academy of Sciences also Mathematical Institute of Budapest University of Technology, Budapest)
    Abstract: Mandatory pension systems only partially replace old-age income, therefore the government also operates a voluntary pension system, where savings are matched by government grants. Accounting for the resulting tax expenditure, our models describe the income flow from shortsighted to farsighted workers. 1. In rational models, explicit results are obtained, showing the limited learning of shortsighted workers. 2. In agent-based models, this learning is improved and this raises the shortsighted workers' saving and reduces perverse income redistribution.
    Keywords: life-cycle savings, overlapping generations, mandatory pensions, voluntary pensions, agent-based models
    JEL: H55 D91
    Date: 2016–02
  7. By: Garcia-Medina Cecilia; Jean-Francois Wen
    Abstract: We construct the ratio of the post-fisc to the pre-fisc transitory component of the variance of family incomes in Canada from 1993 and 2008. The ratio measures how much the tax and transfer system attenuates market income instability. It is shown that the ratio of variances is equivalent theoretically to the concept of residual income progression. The fiscal system became less stabilizing beginning in the late 1990s, especially for families headed by main earners with less than high school education. The trend is attributable to personal income tax reforms and reductions in transfers for lower income families.
    Keywords: Income Instability; Progressive Taxation; Employment Insurance
    JEL: H22 H53 J38
    Date: 2016–06
  8. By: Alisdair McKay; Ricardo Reis
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as inefficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design.
    JEL: E62 H21 H30
    Date: 2016–06
  9. By: Joshua Hall (West Virginia University, Department of Economics); Shree Baba Pokharel (West Virginia University, Department of Economics)
    Abstract: Using cross-sectional data from fifty states of the United States and the District of Columbia for two different time periods, this paper examines the degree to which special interests or the median voter determines state highway expenditures. In addition to finding that previous estimates of the determinants of state highway expenditures are robust, we find that that special interests that were important in 1984 were no longer significant nearly 20 years later. Like the previous literature, we conclude that the reduced form median voter model performs well in explaining state highway expenditures.
    Keywords: median voter model, special interests, highway expenditures
    JEL: H41 H49 H60 H72 H76
    Date: 2016–06
  10. By: Bryan McCannon (West Virginia University, Department of Economics); Paul Walker (West Virginia University, Department of Economics)
    Abstract: The seminal contribution, known as the Condorcet Jury Theorem, observes that under a specific set of conditions an increase in the size of a group tasked with making a decision leads to an improvement in the group's ability to make a good decision. An assumption under-appreciated is that the competency of the members of the group is assumed to be exogenous. In numerous applications, members of the group make investments to improve the accuracy of their decision making (e.g. pre-meeting efforts). We consider the collective action problem that arises. We show that if competence is endogenous, then increases in the size of the group encourages free riding. This trades off with the value of information aggregation. Thus, the value of increased group size is muted. Extensions illustrate that if committee members are allowed to exit/not participate, then the equilibrium committee size is reduced. Additionally, (non-decisive supermajority voting rules encourage the investments and, consequently, individual competence.
    Keywords: committee decision making, Condorcet Jury Theorem, endogenous competence, group size, majority voting, supermajority voting
    JEL: D71 D02 H41
    Date: 2016–06
  11. By: Christian EBEKE (International Monetary Fund (IMF)); Mario MANSOUR (Fiscal Affairs Department - International Monetary Fund); Grégoire ROTA-GRAZIOSI (Ferdi)
    Abstract: In the context of achieving the new Sustainable Development Goals, revenue mobilization is a high priority in developing countries and in Sub-Saharan Africa, where governments’ ability to tax remains limited. Using a unique revenue dataset spanning the period 1980-2010, we analyze three important tax reforms: the Large Taxpayers Unit (LTU), the Value Added Tax (VAT), and the Semi-Autonomous Revenue Agency (SARA). We propose an ex-post impact assessment of these tax reforms in SSA countries based on propensity-score matching methodology (PSM) and synthetic control method (SCM). VAT and SARA are found to have an unambiguously large and positive effect on non-resource taxes, while the impact of LTU is insignificant—LTU seems however an important precondition for the adoption of the first two reforms. We conclude also that VAT and SARA display some synergy, and their positive effects strengthen several years after their adoption.Keywords: tax reforms; Africa; revenue mobilization; causality.
    Keywords: tax reforms, Africa, revenue mobilization, causality.
    JEL: H2 O23 O55 C1
    Date: 2016–06
  12. By: Eric Bettinger; Oded Gurantz; Laura Kawano; Bruce Sacerdote
    Abstract: We examine the impacts of being awarded a Cal Grant, among the most generous state merit aid programs. We exploit variation in eligibility rules using GPA and family income cutoffs that are ex ante unknown to applicants. Cal Grant eligibility increases degree completion by 2 to 5 percentage points in our reduced form estimates. Cal Grant also induces modest shifts in institution choice at the income discontinuity. At ages 28-32, Cal Grant receipt increases by three percentage points the likelihood of living in California at the income discontinuity, and raises earnings by four percentage points at the GPA discontinuity.
    JEL: H2 H4 H41 H52 I2 I22 I23 I24
    Date: 2016–06

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