nep-pub New Economics Papers
on Public Finance
Issue of 2017‒06‒04
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal income taxation with labor supply responses at two margins: When is an Earned Income Tax Credit optimal? By Emanuel Hansen
  2. Taxing and Subsidizing Foreign Investors By Sharma, Rishi
  3. VAT and its Influence on Buying Behaviour By Vladimíra Kucerova
  4. Property tax autonomy and tax mimicking in major metropolitan areas in Poland By Agnieszka Malkowska; Agnieszka Telega; Michal Gluszak; Bartlomiej Marona

  1. By: Emanuel Hansen (University of Cologne)
    Abstract: This paper studies optimal non-linear income taxation in an empirically plausible model with labor supply responses at the intensive (hours, effort) and the extensive (participation) margin. In this model, redistributive taxation gives rise to a previously neglected trade-off between two aspects of effciency: To reduce the deadweight loss from distortions at the extensive margin, the social planner has to increase distortions at the intensive margin and vice versa. Due to this trade-off, minimizing the overall deadweight loss requires to distort labor supply by low-skill workers upwards at both margins. Building on these insights, the paper is the first to provide conditions under which social welfare is maximized by an Earned Income Tax Credit with negative marginal taxes and negative participation taxes at low income levels.
    Keywords: Optimal income taxation, Extensive margin, Intensive margin
    JEL: H21 H23 D82
    Date: 2017–05
  2. By: Sharma, Rishi (Department of Economics, Colgate University)
    Abstract: Many countries impose taxes on foreign investors while also having in place targeted subsidies and tax incentives that are designed to attract them. This paper shows that such a policy can be optimal from the standpoint of a host country. The government has an incentive to tax inframarginal firms because they are relatively immobile. It also has an incentive to subsidize marginal firms because the economic activity generated by such a subsidy can increase domestic wages in excess of the fiscal cost of the subsidy. These tax and subsidy policies improve host country welfare at the expense of foreigners. This analysis is thus able to provide an explanation for why tax coordination efforts can simultaneously entail reduced taxes and subsidies on foreign firms.
    Keywords: international taxation, foreign direct investment, firm heterogeneity, tax competition
    JEL: H87 H25 F23
    Date: 2016–01–01
  3. By: Vladimíra Kucerova (Brno University of Technology, Czech Republic)
    Abstract: Value added tax, as an instrument of fiscal policy and also a very important income for the state budget. It is one of the universal indirect taxes, which has a significant influence on the price level in the country. The European Union's system of value added tax on goods and services are primarily governed by "the 6th VAT Directive" set by the European Commission. The paper deals with the question of how changes in the rates of value added tax influence buying behaviour of customers. Buying behaviour could be expressed as decisions of customers about expending their own resources such as money, effort and time, on items related to their consumption in order to meet their needs. The area of the research is a Czech retail market with food. Due to the nature of VAT, the influence of this tax on buying behaviour was quantified by price elasticity of demand respectively indirect tax elasticity of demand. The article is conceived as a case study, according to the principles R.K. Yin. The evaluation of buying behaviour is based on real data, which deals with volumes of sales and sales prices realized in a specific Czech retail chain, which associate more than 200 shops. The goal of the study is not only to propose the way how to identify buyers' response to the changes in the VAT rate, but also to bring the knowledge about customers’ response to the realized changes, and finally to propose how to use this knowledge in a development of pricing strategy in case of further changes in the VAT rate.
    Keywords: Value Added Tax, price elasticity of demand, buying behavior, food retail, case study
    JEL: D12 H31 E62
    Date: 2017–05
  4. By: Agnieszka Malkowska (Cracow University of Economics, Poland); Agnieszka Telega (Cracow University of Economics, Poland); Michal Gluszak (Cracow University of Economics, Poland); Bartlomiej Marona (Cracow University of Economics, Poland)
    Abstract: Research background: Real estate and urban economics literature is abundant in studies discussing various types of property taxes and their characteristics. Growing area of research focused on tax equity, tax competition, and tax mimicking. Recently, due to substantial developments in spatial and regional economics more attention was drawn to spatial effects. Empirical results are focused on spatial interaction and diffusion effects, hierarchies of place and spatial spillovers. Property tax system in Poland differs from those utilized in the majority of developed countries. As a consequence, property tax policy at local government level (including tax competition and tax mimicking effects) in Poland can differ substantially from those found in previous research in US and other European countries. There are few studies addressing the problem of tax competition and tax mimicking in Poland from empirical perspective. Purpose of the article: In the article we explore spatial dependences in property taxation. We identify clustering or dispersion of high and low values of the tax rates within major metropolitan areas in Poland. The effects can indicate presence of tax mimicking among municipalities in given metropolitan areas. Methodology/methods: We analyze the panel data from 304 municipalities in 10 metropolitan areas in Poland from year 2007 to 2016. The data covers four property tax rates: (1) on residential buildings (2) on buildings used for business purpose (3) on land used for business purpose (4) on land for other uses. To explore spatial distribution of rates we used global and local spatial autocorrelation indicators (Moran’s I statistic and LISA). Findings: The results suggest the presence of spatial correlation within metropolitan areas. We also found significant differences between metropolitan areas. The results of the study fill the gap in empirical research concerning property tax mimicking in Poland.
    Keywords: tax autonomy; property taxation; tax mimicking; spatial interdependence; Poland
    JEL: H2 H71 R5
    Date: 2017–05

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