nep-pub New Economics Papers
on Public Finance
Issue of 2017‒04‒16
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax progressivity and top incomes: Evidence from tax reforms By Rubolino, Enrico; Waldenström, Daniel
  2. Optimal tax policy under heterogeneous environmental preferences By Marcelo Arbex; Christian Trudeau
  3. The Effect of Corporate Taxes on Investment: Evidence from the Colombian Firms By Ligia Alba Melo-Becerra; Javier Ávila Mahecha; Jorge Enrique Ramos-Forero

  1. By: Rubolino, Enrico; Waldenström, Daniel
    Abstract: We study the link between tax progressivity and top income shares. Using variation from large-scale Western tax reforms in the 1980s and 1990s and the novel synthetic control method, we find large and lasting boosting impacts on top income shares from the progressivity reductions. Effects are largest in the very top groups while earners in the bottom half of the top decile were almost unaffected by the reforms. Cuts in top marginal tax rates account for most of this outcome whereas reduced overall progressivity contributed less. Searching for mechanisms, real income responses as measured by growth in aggregate GDP per capita, registered patents and tax revenues were unaffected by the reforms. By contrast, tax avoidance behavior related to the management of capital incomes in the very income top appears to lie behind the observed effects.
    Keywords: Income inequality; Tax policy
    JEL: H21 H24 H26
    Date: 2017–03
  2. By: Marcelo Arbex (Department of Economics, University of Windsor); Christian Trudeau (Department of Economics, University of Windsor)
    Abstract: Abstract We model a federation of two heterogeneous jurisdictions where agents value consumption vs. nature differently. Consumption obtained through pollution-inducing production also generates a negative externality on neighbors. We show that even with a decentralized policy we can obtain first-best efficiency by choosing a combination of pollution taxes in both regions and lump-sum transfers. Moreover, we show that optimal pollution taxes are determined only by the externality parameters, independent of agents' preferences for consumption and nature.
    Keywords: Externalities, environmental preferences, optimal taxation.
    JEL: D62 H23 Q53 Q58
    Date: 2017–04
  3. By: Ligia Alba Melo-Becerra (IHEID, Banco de la República, Bogotá, Colombia); Javier Ávila Mahecha (Dirección de Impuestos y Aduanas Nacionales, Bogotá, Colombia); Jorge Enrique Ramos-Forero (Banco de la República, Bogotá, Colombia)
    Abstract: The paper assesses the role of taxes on investment in Colombian firms. The analysis is carried out at the firm level for the period 2003-2014. During this period, the national government set five different tax reforms, including changes in the statutory tax rates, tax credits and incentives for corporate investment. The effect of corporate taxation on investment is estimated by first determining the impact of taxation on the cost of capital by computing the effective marginal tax rates (EMTRs) at firm level. Then, we estimate the impact of the cost of capital on investment through a panel data regression. Endogeneity is controlled by an instrumental variable approach, simulating post-reform effective marginal tax rates under pre-reform firm characteristics. Results are robust with different control variables, although some significant differences by size and economic sector of the firm are found.
    Keywords: Corporate Taxes, Marginal Effective Tax Rate, Investment, Cash Flows
    JEL: H32 H25 C23 D22
    Date: 2017–04

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