nep-pub New Economics Papers
on Public Finance
Issue of 2016‒11‒20
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. More on the Optimal Taxation of Capital By Pedro Teles; Juan Nicolini
  2. Optimal taxation with intermittent generation By Fadoua CHIBA
  3. Stimulative Effects of Temporary Corporate Tax Cuts By William GBOHOUI; Rui Castro
  4. A Sales Tax Is Better at Promoting Healthy Diets than the Fat Tax and the Thin Subsidy By Kalamov, Zarko Y.
  5. Dynamic Tax Evasion with Habit Formation By Michele Bernasconi; Rosella Levaggi; Francesco Menoncin
  6. Collective Choice in Dynamic Public Good Provision By Bowen, T. Renee; Georgiadis, George; Lambert, Nicolas
  7. Endogenous Leadership in a Federal Transfer Game. By Sengupta, Bodhisatva
  8. Political competition and tax revenues in developing countries By Urbain T. Yogo1; Martine M; Ngo Njib
  9. Bridging or Bonding? Preferences for Redistribution and Social Capital in Russia By Ekaterina Borisova; Andrei Govorun; Denis Ivanov
  10. Linking taxation and social protection Evidence on redistribution and poverty reduction in Ethiopia By Kalle Hirvonen; Giulia Mascagni; Keetie Roelen

  1. By: Pedro Teles (Banco de Portugal, Universidade Catolica); Juan Nicolini (Federal Reserve Bank of Minneapolis)
    Abstract: Should capital income taxes be zero in the long run, as argued by Chamley (1986) and Judd (1985)? Or should instead capital be heavily taxed as suggested by Straub and Werning (2015)? We revisit the Ramsey literature on the optimal taxation of capital and make again the case for a low, possibly zero, tax on capital income.
    Date: 2016
  2. By: Fadoua CHIBA
    Abstract: The paper analyses the development of the intermittent technologies to produce electricity, facing the competition of the incumbent sector, using conventional technologies. In our analysis of the interaction between these two sectors, we consider the environmental damage caused by the electricity production from fossil fuel. This allowed us to represent the social cost of electricity production. We show that it is socially favorable to keep some conventional capacities in reserve. We then investigate the efficiency of environmental taxes in the internalization of the environmental damage. The paper shows that there is not a rate tax capable of implementing the first-best equilibrium. Effectively, this requires a variable tax rate, which seems unrealistic in practice. We also determine the constrained second-best equilibrium and the tax rate that decentralizes it. Interestingly, we find that the interaction between a retail price and tax, both constant and the intermittency of renewable energy, yield to two phenomena that, on average, promote the investment in intermittent capacities.
    Keywords: Electricity, Intermittency, Tax, Renewable Energy, Pollution.
    JEL: D24 D61 Q41 Q42 Q48
    Date: 2016
  3. By: William GBOHOUI; Rui Castro (Western University)
    Abstract: Policymakers often rely on temporary corporate tax cuts in order to provide incentives for business investment in recession times. A common motivation is that such policies help relax financing frictions, which might bind more during recessions. Our aim is to assess whether this mechanism is effective at raising aggregate investment and output. We consider an industry equilibrium model where some firms are financially constrained, and therefore have high marginal propensities to invest. By increasing current cash flows, corporate tax cuts are effective at stimulating investment. We quantify by how much aggregate investment and output increase, and describe the effects in the cross-section of firms. We find that, on impact, a temporary reduction in corporate taxation increases aggregate investment by 26 cents per dollar of tax stimulus, and aggregate output by 3.5 cents. The cumulative effect multipliers yield increases of investment and output of 4.6 and 7.2 cents, respectively. A major factor preventing larger effects is that this policy tends to significantly crowd out investment among the larger, unconstrained firms.
    Date: 2016
  4. By: Kalamov, Zarko Y.
    Abstract: Rising prevalence of obesity among adults and children is a major policy issue in many countries. Two widely discussed instruments to address obesity are a tax on unhealthy foods (fat tax) and a subsidy on healthy foods (thin subsidy). We compare these two policies to a sales tax on all food products, taking into account the different opportunity costs in terms of time for healthy and unhealthy meals. We show that the policy which reduces obesity under the most general conditions is the sales tax without the fat tax and the thin subsidy. Moreover, this policy is the only one which unambiguously stimulates healthy consumption.
    Keywords: fat tax,thin subsidy,sales tax,obesity
    JEL: D11 I12 I18 H31 H51
    Date: 2016
  5. By: Michele Bernasconi; Rosella Levaggi; Francesco Menoncin
    Abstract: Although tax evasion and auditing are dynamic processes, they have been approached in a dynamic framework only recently. We argue that the decision to avoid taxes is dynamically embedded with consumption decisions, which in turn are driven by consumption habits. The model is cast in a dynamic context with an infinite horizon. Our paper makes several contributions to the existing literature on tax evasion: 1) habit formation has a dampening effect on tax evasion; 2) as the representative consumer grows older, the gap between habit and consumption decreases and his tax evasion decreases; 3) the effect of an increase in tax evasion depends on the ration of habit to capital, i.e. the presence of the Yitzhaki (1974) paradox depends on such a ratio; 4) we show that in the long run the ratio increases while the relationship between evasion and the tax rate changes from being positive to being negative; 5) the model has policy implications: other things being equal, it is better to induce people to reduce their level of tax evasion with controls rather than fines.
    Keywords: dynamic tax evasion, habit
    JEL: H26 H30
    Date: 2016
  6. By: Bowen, T. Renee; Georgiadis, George; Lambert, Nicolas
    Abstract: Two heterogeneous agents contribute over time to a joint project, and collectively decide its scope. A larger scope requires greater cumulative effort and delivers higher benefits upon completion. We show that the efficient agent prefers a smaller scope, and preferences are time-inconsistent: as the project progresses, the efficient (inefficient) agent's preferred scope shrinks (expands). We characterize the equilibrium outcomes under dictatorship and unanimity, with and without commitment. We find that an agent's degree of efficiency is a key determinant of control over project scopes. From a welfare perspective, it may be desirable to allocate decision rights to the inefficient agent.
    Keywords: authority; collective choice; contribution games; free-riding; Public Goods
    JEL: C73 D70 D78 H41
    Date: 2016–11
  7. By: Sengupta, Bodhisatva (IIT-Guwahati)
    Abstract: Conventional wisdom suggests that, to negate fiscal externalities imposed by provinces which spend too much and raise lower local resources, central authority should always be a first mover in the transfer game. In spite of such recommendations, central governments, in almost all countries, chooses to be the second mover from time to time. We explore the conditions, other than the familiar political economy arguments, under which the central government optimally chooses to be the second mover. Moreover, ex post transfer protocols may induce provinces to generate more local resources than otherwise. The results depend upon the benefit received by each level of government from the project outcomes of other tier.
    Keywords: Federalism ; Transfer Game ; First and Second Mover Advantages
    JEL: H77 H23 H10
    Date: 2016–11
  8. By: Urbain T. Yogo1; Martine M; Ngo Njib
    Abstract: Building on the literature of the political economy of taxation, this article explores the relationship between political competition and tax revenues using a sample of 89 developing countries from 1988 to 2010. Owing to the inertia of tax variables, we estimate a dynamic panel data model using the Blundell and Bond two-step System-GMM. The analysis led to the following results: political competition positively and significantly affects total tax revenues; however, this general pattern differs slightly across the type of taxes; and the net effect of political competition on tax revenues is negative for countries which have adopted fiscal rules.
    Keywords: level of tax revenues, political competition, volatility of tax revenues pages
    Date: 2016
  9. By: Ekaterina Borisova (International center for the study of institutions and development, National research university higher school of economics (Moscow)); Andrei Govorun (International center for the study of institutions and development, National research university higher school of economics (Moscow)); Denis Ivanov (International center for the study of institutions and development, National research university higher school of economics (Moscow))
    Abstract: Does bridging or bonding social capital matter for redistribution preferences? Existing literature demonstrates causal link between measures of social capital and such preferences but does it mostly for developed countries with good enforcement of formal rules and without a distinction between two completely different types of social capital. We argue that welfare state relies on contributions from an immense number of anonymous citizens, thus attitudes towards strangers, i.e. generalized trust and solidarity should be salient. Using two surveys of about 34,000 and 37,000 Russians we prove this proposition showing the importance of the bridging type but not the bonding one. Instrumenting social capital with education, climate and distance from Moscow we deal with endogeneity concerns. Additionally we claim that connection between social capital and redistribution preferences for less developed countries such as Russia could be similar to developed countries
    Keywords: preferences for redistribution; inequality; social capital; trust; corruption; Russia
    JEL: Z13 H10
    Date: 2016–11
  10. By: Kalle Hirvonen; Giulia Mascagni; Keetie Roelen
    Abstract: The reduction of poverty, and more recently inequality, are pressing concerns in many low- and middle-income countries, not in the least as a result of the Sustainable Development Goals committing countries to significant improvements by 2030. Redistribution is important for reaching these goals, and is shaped by countries’ tax and welfare systems. Despite redistribution resulting from the simultaneous effect of revenue collection and public expenditures, policies and analyses of their distributional effects have largely been undertaken from narrow and singular perspectives. In this paper, we aim to jointly assess the distributional effect of taxes and transfers (through social protection) using Ethiopia as a case study. We find that currently Ethiopia’s flagship social protection programme is more effective than income taxation in achieving poverty reduction, while neither policy achieves a sizeable reduction in overall inequality. Overall, our findings provide support for the common belief that social spending is more suitable than taxation to achieve redistribution. We also assessed whether Ethiopia would have the capacity to achieve the desired level of redistribution by applying higher marginal rates on relatively high incomes. Our results suggest that Ethiopia does not currently have the capacity to close the poverty gap, or to fully fund its main safety net programme using domestic income sources alone.
    Keywords: Ethiopia, equity, social protection, income tax, micro-simulation

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