nep-pub New Economics Papers
on Public Finance
Issue of 2017‒04‒30
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal income taxation theory and principles of fairness By FLEURBAEY Marc; MANIQUET François
  2. The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment By Bock, Carolin; Watzinger, Martin
  3. Fiscal policy, income redistribution and poverty reduction in low and middle income countries By Nora Lustig
  4. Tax Avoidance by Capital Reduction: Evidence from corporate tax reform in Japan By HOSONO Kaoru; HOTEI Masaki; MIYAKAWA Daisuke

  1. By: FLEURBAEY Marc (Princeton University); MANIQUET François (Université catholique de Louvain, CORE, Belgium)
    Abstract: The achievements and limitations of the classical theory of optimal labor-income taxation based on social welfare functions are now well known. Even though utili-tarianism still dominates public economics, recent interest has arisen for broadening the normative approach and making room for fairness principles such as desert or responsibility. Fairness principles sometimes provide immediate recommendations about the relative weights to assign to various income ranges, but in general require a careful choice of utility representations embodying the relevant interpersonal com-parisons. The main message of this paper is that the traditional tool of welfare economics, the social welfare function framework, is exible enough to incorporate many approaches, from egalitarianism to libertarianism.
    Keywords: Optimal taxation, fair social orderings
    JEL: H21 D63
    Date: 2017–03–29
  2. By: Bock, Carolin (TU Darmstadt); Watzinger, Martin (University of Munich)
    Abstract: Our study analyzes the effect of the capital gains tax on the individual investment decisions of venture capitalists. By doing so, we are able to study the decisions for a sample of 76,852 funding rounds in 32 countries from 2000 to 2012. Our results support the predictions of the theoretical model that higher capital gains tax rates are associated with fewer start-ups financed and a lower probability of receiving follow-up funding. However, the results concerning the effect on the probability of success of start-ups show that a higher tax burden is associated with a higher probability of eventual start-up success.
    Keywords: Venture Capital; Capital Gains Tax; Selection Effect; Follow-up Funding; Innovation;
    JEL: G24 H25 H32
    Date: 2017–04–26
  3. By: Nora Lustig (Tulane University)
    Abstract: Current policy discussion focuses primarily on the power of fiscal policy to reduce inequality. Yet, comparable fiscal incidence analysis for twenty-eight low and middle income countries reveals that, although fiscal systems are always equalizing, that is not always true for poverty. In Ethiopia, Tanzania, Ghana, Nicaragua, and Guatemala the extreme poverty headcount ratio is higher after taxes and transfers (excluding in-kind transfers) than before. In addition, to varying degrees, in all countries a portion of the poor are net payers into the fiscal system and are thus impoverished by the fiscal system. Consumption taxes are the main culprits of fiscally-induced impoverishment. Net direct taxes are always equalizing and indirect taxes net of subsidies are equalizing in nineteen countries of the twenty-eight. While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing but not always pro-poor. More unequal countries devote more resources to redistributive spending and appear to redistribute more. The latter, however, is not a robust result across specifications.
    Keywords: fiscal incidence, social spending, inequality, poverty, developing countries.
    JEL: H22 H5 D31 I3
    Date: 2017–02
  4. By: HOSONO Kaoru; HOTEI Masaki; MIYAKAWA Daisuke
    Abstract: Using the pro forma standard taxation system introduced in Japan on April 1, 2004 as a natural experiment, we empirically examine how firms reacted to this exogenous institutional change, which burdened all firms holding stated capital of larger than 100 million yen with additional tax payments. Then, we determine whether such a reaction (if any) systematically resulted in firm growth. Our results are as follows. First, firms that originally held capital above the threshold became more likely to reduce their capital to the threshold level, or below, after the announcement of the new tax system. Second, firms that exhibit losses, hold smaller assets, have lower liquidity, and/or would benefit more from a tax point of view by reducing their capital were more likely to do so. Third, firms that reduced their capital showed a higher exit rate and ex-post lower growth in size, as measured by total and tangible assets, number of employees, and sales. Quantitatively, firms that reduced their capital decreased their assets, employment, and sales by 15%, 11%, and 4%, respectively, on average, within two years of the capital reduction, as compared with those that did not. Fourth, while the debt-to-total assets ratio of firms that reduced their capital did not change in comparison with firms that did not do so, the former did show a relative increase in the share of total assets made up of liquid assets. These results imply that the policy-induced capital reduction had substantial negative impacts on firm growth, and resulted in firms changing the balance of their asset holdings in favor of liquid assets.
    Date: 2017–03

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