nep-pub New Economics Papers
on Public Finance
Issue of 2016‒10‒09
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal income taxation with a stationarity constraint in a dynamic stochastic economy By Berliant, Marcus; Fujishima, Shota
  2. Inequality Aversion and Marginal Income Taxation By Aronsson, Thomas; Johansson-Stenman, Olof
  3. Investor taxation, firm heterogeneity and capital structure choice By Haring, Magdalena; Niemann, Rainer; Rünger, Silke
  4. Regulation versus Taxation By Hirte, Georg; Rhee, Hyok-Joo
  5. Environmental taxation and international trade in a tax-distorted economy By Llop Llop, Maria
  6. Trade Shocks and the Provision of Local Public Goods By Feler, Leo; Senses, Mine Zeynep

  1. By: Berliant, Marcus; Fujishima, Shota
    Abstract: We consider the optimal nonlinear income taxation problem in a dynamic, stochastic environment when the government cannot change the tax rule as uncertainty resolves. Due to such a stationarity constraint, our taxation problem is reduced to a static one over an expanded type space that incorporates type evolution. We strengthen the argument in the static model that the zero top marginal tax rate result is of little practical importance because it only applies to the top of the expanded type space. If the maximal type increases over time, the person with top ability in any period but the last has a positive marginal tax rate.
    Keywords: Optimal income taxation; New dynamic public finance
    JEL: H21
    Date: 2016–10–01
  2. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg, Sweden)
    Abstract: This paper deals with tax policy responses to inequality aversion by examining the first-best Pareto-efficient marginal tax structure when people are inequality averse. In doing so, we distinguish between four different and widely used models of inequality aversion. The results show that empirically and experimentally quantified degrees of inequality aversion have potentially very strong implications for Pareto-efficient marginal income taxation. It also turns out that the exact type of inequality aversion (self-centered vs. non-self-centered), and the measures of inequality used, matter a great deal. For example, based on simulation results mimicking the disposable income distribution in the US in 2013, the preferences suggested by Fehr and Schmidt (1999) imply monotonically increasing marginal income taxes, with large negative marginal tax rates for low-income individuals and large positive marginal tax rates for high-income individuals. In contrast, the often considered similar model by Bolton and Ockenfels (2000) implies close to zero marginal income tax rates for all.
    Keywords: Pareto-efficient taxation; Inequality aversion; Inequity aversion; Self-centered inequality aversion; Non-self-centered inequality aversion; Fehr and Schmidt preferences; Bolton and Ockenfels preferences
    JEL: D03 D62 H23
    Date: 2016–10–03
  3. By: Haring, Magdalena; Niemann, Rainer; Rünger, Silke
    Abstract: In this paper we analyze the effect of investor level taxes, firm-specific ownership structure and firm-specific payout policy on firms' capital structure choice. Our analysis is based on data for 10,983 firms from 13 Central and Eastern European (CEE) countries over the time period 2002-2012. Our results show a significant impact of the net tax benefit of debt on the debt ratio of firms. Ignoring firm heterogeneity, an increase in the net tax benefit of debt by 10 percentage points leads to an increase in the debt ratio of 2.49 percentage points. Taking into account investor-level taxation and firm heterogenity, an increase in the net tax benefit of debt of 10 percentage points leads to an increase in the debt ratio of only 1.27 percentage points, if the firm's largest individual domestic owner has more than 50% of the shares. If all individual domestic owners together have more than 50% of the shares, an increase in the net tax benefit of debt of 10 percentage points leads to a negligible increase in the debt ratio of 0.05 percentage points.
    JEL: G32 H24 H25 H32
    Date: 2016
  4. By: Hirte, Georg; Rhee, Hyok-Joo
    Abstract: We examine the working mechanisms and efficiencies of zoning (regulation of floor area ratios and land-use types) and fiscal instruments (tolls, property taxes, and income transfer), and extend the instrument choice theory to include the congestion of road and nonroad infrastructure. We show that in the spatial model with heterogeneous households the standard first-best instruments do not work because they trigger distortion of spatial allocations. In addition, because of the household heterogeneity and real estate market distortions, zoning could be less efficient than, as efficient as, or more efficient than pricing instruments. However, when the zoning enacted deviates from the optimum, zoning not only becomes inferior to congestion charges but is also likely to reduce welfare. In addition, we provide a global platform that extends the instrument choice theory of pollution control to include various types of externalities and a wide range of discrete policy deviations for any reasons beyond cost–benefit uncertainties.
    Keywords: infrastructure congestion,zoning,road tolls,property tax,instrument choice,heterogeneity,Infrastruktur,Verkehrsstau,Zoning,Maut,Grundsteuer,Heterogenität
    JEL: H21 R52
    Date: 2016
  5. By: Llop Llop, Maria
    Abstract: International environmental agreements have met with the reluctance of some countries to accept general commitments aimed at reducing greenhouse gas emissions. While acknowledging the crucial significance of the climate change process, politicians and regulators in some export-oriented countries have argued that pollution measures would have a negative impact on their domestic welfare. Despite the literature having thoroughly analysed those impacts from various points of view, using different methodological approaches, the second-best general equilibrium analysis has not to date been used to analyse the relationship between environmental taxation and trade. This paper fills this gap by presenting a general equilibrium model to examine the welfare effects of taxing a polluting exported good through an explicit representation of the trade relations of the economy in the presence of pre-existing taxes. The results extend the scope of the literature on second-best taxation by demonstrating that trade affects all the traditional welfare components proposed in the previous studies. In addition, trade neutrality on welfare not only depends on partial equilibrium effects but also general equilibrium impacts, involving the ability to replace the distortionary income tax with the new tax and the influence of environmental improvements on the labour-leisure choice. Keywords: environmental taxation; trade-substitution effect; welfare trade neutrality. JEL classification: F18, H21, H23.
    Keywords: Comerç internacional -- Aspectes ambientals, Medi ambient -- Impostos, 339 - Comerç. Relacions econòmiques internacionals. Economia mundial. Màrqueting,
    Date: 2016
  6. By: Feler, Leo (Johns Hopkins University); Senses, Mine Zeynep (Johns Hopkins University)
    Abstract: We analyze the impact of trade-induced income shocks on the size of local government, and the provision of public services. Areas in the US with declining labor demand and incomes due to increasing import competition from China experience relative declines in housing prices and business activity. Since local governments are disproportionately funded through property and sales taxation, declining property values and a decrease in economic activity translate into less revenue, which constrains the ability of local governments to provide public services. State and federal governments have limited ability to smooth local shocks, and the impact on the provision of public services is compounded when local income shocks are highly correlated with shocks in the rest of the state. The outcome is greater inequality not only in incomes but also in the quality of public services and amenities across US jurisdictions.
    Keywords: trade shocks, housing prices, intergovernmental transfers, public finance, public goods
    JEL: F14 F16 H41 H70 R12 R23
    Date: 2016–09

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