nep-pub New Economics Papers
on Public Finance
Issue of 2017‒05‒28
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Stimulus Effects of Investment Tax Incentives: Production versus Purchases By Christopher L. House; Ana-Maria Mocanu; Matthew D. Shapiro
  2. Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing By Nina Biljanovska; Alexandros Vardoulakis
  3. Relative tax in a vertically differentiated market: the key role of consumers in environment By G. Ceccantoni; O. Tarola; C. Vergari
  4. Is there any Induced Demand for Tax Evasion? By Marchese, Carla; Venturini, Andrea
  5. Bonus Taxes and International Competition for Bank Managers By Gietl, Daniel; Haufler, Andreas
  6. Tax Administration Reforms in the Caribbean; Challenges, Achievements, and Next Steps By Stephane Schlotterbeck
  7. Changing Tax Capacity and Tax Effort of Indian States in the Era of High Economic Growth, 2001-2014. By Mukherjee, Sacchidananda

  1. By: Christopher L. House; Ana-Maria Mocanu; Matthew D. Shapiro
    Abstract: The distinction between production and purchases of investment goods is essential for quantifying the response to changes in investment tax incentives. If investment goods are tradeable, a large fraction of the demand from changes in tax subsidies will be met from abroad. This difference between production and purchases implies that investment tax incentives will lead to more capital accumulation, but less stimulus to economic activity relative to a no-trade counterfactual. Domestic capacity to produce investment goods is less than perfectly elastic because of quasi-fixed factors of production, adjustment costs, and specialization of labor. This paper builds these features into a DGSE model where key parameters are estimated to match the reduced-form response of investment production and purchases to tax incentives. Typical investment tax policies result in equipment purchases that are split roughly half between domestic and foreign production of equipment.
    JEL: E22 E62 H25
    Date: 2017–05
  2. By: Nina Biljanovska; Alexandros Vardoulakis
    Abstract: We study optimal long-run capital taxation in a closed economy with heterogeneity in agents' time-discount factors where borrowing is allowed but restricted by a collateral constraint. Financial frictions distort intertemporal optimization margins and the tax system serves a dual role: first, it is used to finance government consumption; second, it serves to alleviate the distortions arising from the binding collateral constraint. The discrepancy between the private and the social discount factors pushes for a subsidy on capital, while the discrepancy introduced by the collateral constraint pushes for a tax in the long-run. When consumption smoothing motives are muted, the two effects counter-balance each other and the tax is zero. With finite elasticity of intertemporal substitution, the second discrepancy dominates and the tax on capital income is positive in the long-run.
    Keywords: Ramsey taxation ; Collateral constraint ; Heterogeneous discount factors ; Tax on capital
    JEL: E60 E61 E62 H21
    Date: 2017–05–05
  3. By: G. Ceccantoni; O. Tarola; C. Vergari
    Abstract: In this paper, under the assumption that green consumption has (at least partially) a social/psychological dimension, we analyse the effect of a carbon tax when it is imposed on consumers buying dirty products rather than on polluting firms. The amount of the tax paid is determined by the share of brown consumers in the market and the quality gap between variants. We show that this tax can abate emissions without inducing the undesirable relocation effect which can be observed in the case when a unilateral climate policy is imposed on polluting producers.
    JEL: H30 D43 Q5 L13
    Date: 2017–05
  4. By: Marchese, Carla; Venturini, Andrea
    Abstract: In this paper we consider amoral taxpayers who access amoral tax preparers in order to receive help in evading taxes. Taxpayers are aware of having a biased perception of the audit probability, but are unable to correct such bias without the help of a tax preparer. The market for tax preparation, characterized by imperfect competition, is described according to the conjectural variation approach. We show that according to the direction of the bias the tax preparer can suggest either a larger or a smaller evasion with respect to the one that the taxpayer would have implemented without the advice, resulting in an evasion smaller or larger than that observed in tax reports of unbiased taxpayers. Such ambiguity provides a motivation for the ambivalent attitudes of tax administrations towards tax preparers. It also turns out that sanctions on taxpayers are more effective than sanctions on tax preparers in order to deter tax evasion.
    Date: 2017–05
  5. By: Gietl, Daniel (University of Munich); Haufler, Andreas (University of Munich)
    Abstract: We analyze the competition in bonus taxation when banks compensate their managers by means of fixed and incentive pay and bankers are internationally mobile. Banks choose bonus payments that induce excessive managerial risk-taking to maximize their private benefits of existing government bailout guarantees. In this setting the international competition in bonus taxes may feature a \'race to the bottom\' or a \'race to the top\', depending on whether bankers are a source of net positive tax revenue or inflict net fiscal losses on taxpayers as a result of incentive pay. A \'race to the top\' becomes more likely when governments\' impose only lax capital requirements on banks, whereas a \'race to the bottom\' is more likely when bank losses are partly collectivized in a banking union.
    Keywords: bonus taxes; international tax competition; migration;
    JEL: H20 H87 G28
    Date: 2017–05–20
  6. By: Stephane Schlotterbeck
    Abstract: Over the past decade, governments in the Caribbean region have introduced the value-added tax (VAT) to modernize their tax system, rapidly mobilize revenue and reduce budget deficits. This paper analyzes VAT performance in the region and concludes that while it has boosted revenues, the VAT has not reached its potential. Intended as a broad-based tax with limited exemptions, a single rate and zero-rating confined to exports, the VAT's design often lacks these characteristics. The paper also finds that although tax administration reforms can boost revenues, countries have just started to address organizational inefficiencies, data integrity issues, and operational ineffectiveness. These reforms need to intensify in order to have a more significant impact on compliance and revenue.
    Keywords: Antigua and Barbuda;Asia and Pacific;Bahamas, The;Barbados;Dominica;Dominican Republic;Grenada;Haiti;Jamaica;Western Hemisphere;Saint Kitts and Nevis;Saint Lucia;Saint Vincent and the Grenadines;Trinidad and Tobago;Tax administratuion reforms, General
    Date: 2017–04–04
  7. By: Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Growing demand for public expenditures, limitations in expanding fiscal space and limited scope to deviate from common harmonized tax system under the proposed Goods and Services Tax (GST) regime may induce the states to look for opportunities to xpand revenue mobilization through alternative channels (e.g. non-tax revenue mobilization). An assessment of the existing tax efficiency (or tax effort) and strengthening tax administration could be one of such alternatives available for states to pursue. Tax administration is as important as tax base to augment revenues of a state. Efficiency of tax administration helps a state to achieve a stable tax regime which is conducive for introduction of tax reforms measures like GST. Buoyancy of tax revenues of a state is not only dependent on growth in tax base and structure of taxes but also on the state of tax administration. Many papers have been written to estimate tax effort of Indian states. Taking this exercise to the next level, this paper focuses on measuring tax effort and identifying factors that explain variations in the tax effort across states. In measuring tax potential, an attempt has been made to differentiate between factors that determine the tax base and factors that constrain the state from utilizing the available base. The exercise looks at comprehensive revenue collection under Value Added Tax of general category states for the period 2001-02 to 2013-14.
    Keywords: Tax capacity ; Tax efficiency ; Value Added Tax (VAT) ; Stochastic Frontier Approach ; Panel Data Analysis ; States of India
    JEL: H21 H71 H77
    Date: 2017–05

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