nep-pub New Economics Papers
on Public Finance
Issue of 2016‒09‒11
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation with Endogenous Return to Capital By Kristjánsson, Arnaldur Sölvi
  2. Taxation of Couples: a Mirrleesian Approach for Non-Unitary Households By Lucas de Lima; Carlos da Costa
  3. R&D Tax Incentives: Evidence on design, incidence and impacts By Silvia Appelt; Chiara Criscuolo; Fernando Galindo-Rueda; Matej Bajgar
  4. Economic Development and Preferences for Redistribution By Hideaki Goto
  5. Fiscal Federalism, Taxation and Grants By Gonzalez-Eiras, Martin; Niepelt, Dirk
  6. U.S. Corporate Income Tax Reform and its Spillovers By Kimberly Clausing; Edward Kleinbard; Thornton Matheson

  1. By: Kristjánsson, Arnaldur Sölvi (Dept. of Economics, University of Oslo)
    Abstract: This paper characterizes the optimal income and wealth tax schedules when rates of return are endogenous. Individuals exert investment effort in order to increase the return on their investments. Agents are heterogeneous along two dimensions: their investment ability and their labour market productivity. I show that when individuals can exert investment effort, the Atkinson-Stiglitz theorem that capital income should not be taxed does not hold. When the government observes wealth and capital income, it is optimal to tax capital income and subsidize wealth. When wealth is not observed, it is optimal to tax capital Income. The marginal tax rates on labour and capital income should not be equal, but they should be positively related to each other. The results extend to a model where individuals can hire investment advisors to increase the rate of return and also to a model with heterogeneous inheritance, in which case both capital Income and wealth should be taxed.
    Keywords: Optimal taxation; capital taxation; endogenous return to capital
    JEL: G11 H21 H24
    Date: 2016–04–28
  2. By: Lucas de Lima (Fundacao Getulio Vargas); Carlos da Costa (Fundação Getulio Vargas)
    Abstract: Can we still rely on the taxation and revelation principles to study optimal taxation if households do not behave as single agents as precribed by the unitary model? To address this question we take a collective view of households, for which choices are outcomes of Nash bargains. The mechanism plays the dual role of inducing the allocations given that spouses make joint decisions and determining through threat points the objective functions optimized by spouses. We show that the revelation principle applies, provided that one uses the appropriate defintion of a type. The same is not true for the taxation principle, which typically fails in this environment. Our findings should prove useful to other group decison problems such as group borrowing and cartel behavior for firms with economies of scope.
    Date: 2016
  3. By: Silvia Appelt; Chiara Criscuolo; Fernando Galindo-Rueda; Matej Bajgar
    Abstract: This policy paper provides an overview of OECD work on measuring the extent and impact of public support for R&D through tax incentives. It discusses the policy rationale for tax incentives in the broader context of public support for business R&D, describing the main features of different modes of expenditure-based tax relief for R&D. It presents evidence on how much financial support is provided through tax incentives, how this has evolved in recent years and the variation in implied R&D tax subsidy rates across OECD countries and partner economies. The document also reviews empirical evidence on the impact of tax incentives, covering in detail different categories of impacts including potentially unintended effects. It further includes evidence on the use and impacts of income-based R&D tax incentives. The paper concludes with a synthesis of the main policy recommendations contained in key OECD policy documents and highlights future measurement and analytical work planned in this area.
    Date: 2016–09–10
  4. By: Hideaki Goto (International University of University)
    Abstract: This study empirically analyzes whether people's preferences for redistribution change as their countries develop. The results show that after controlling for income inequality, political orientation, and demographic and institutional factors, among others, people in more developed countries are more in favor of redistribution. This implies that concern for, or a social norm of caring about, the poor grows as a country becomes richer.
    Keywords: Redistribution, GDP per capita, Social preferences, Social norms
    JEL: D31 D63 H20
    Date: 2016–08
  5. By: Gonzalez-Eiras, Martin; Niepelt, Dirk
    Abstract: We propose a theory of tax centralization and inter governmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. This renders the degree of tax centralization and the tax burden determinate even if none of the traditional, expenditure-related motives for centralization considered in the fiscal federalism literature is present. If central and local spending are complements and the trade-off between the cost of taxation and the benefit of spending is perceived differently across levels of government, inter governmental grants become relevant. Calibrated to U.S. data, our model helps to explain the introduction of federal grants at the time of the New Deal, and their increase up to the turn of the twenty-first century. Grants are predicted to increase to approximately 5.5% of GDP by 2060.
    Keywords: Fiscal Federalism; Grants; Markov equilibrium; Politico-economic equilibrium; Public Goods
    JEL: D72 E62 H41 H77
    Date: 2016–08
  6. By: Kimberly Clausing; Edward Kleinbard; Thornton Matheson
    Abstract: This paper examines the main distortions of the U.S. corporate income tax (CIT), focusing on its international aspects, and proposes a set of reforms to alleviate them. A bold reform to replace the CIT with a corporate-level rent tax could induce efficiency-enhancing reform of the international tax system. Since fundamental reform is politically difficult, this paper also proposes an incremental reform that would reduce tax expenditures, reduce the CIT rate to 25-28 percent, and impose a minimum rent tax on foreign earnings. Finally, this paper analyzes empirically the likely impact of the incremental on corporate revenues outside the U.S.: Though a U.S. rate cut would likely lower revenues elsewhere, implementation of a strong minimum tax could more than offset that effect for most countries with effective tax rates above 15 percent.
    Keywords: Corporate income taxes;United States;Tax reforms;Positive spillovers;International taxation;Tax systems;Corporate income tax, tax reform, international taxation
    Date: 2016–07–05

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