nep-pub New Economics Papers
on Public Finance
Issue of 2017‒06‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxes Under Private Information: The Role of the Inflation Tax By Gomis-Porqueras, Pedro; Waller, Christopher J.
  2. Optimal Taxation, Redistribution, and Environmental Externalities By Aronsson, Thomas; Sjögren, Tomas
  3. Healthcare tax credits: financial help to taxpayers or support to higher income and better educated patients? Evidence from Italy. By Elenka Brenna
  4. The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities By Hirota, Haruaki; Yunoue, Hideo
  5. Taxation and Investment in India By Alastair Thomas; Isabelle Joumard; Tibor Hanappi; Michelle Harding

  1. By: Gomis-Porqueras, Pedro (Deakin University); Waller, Christopher J. (Federal Reserve Bank of St. Louis)
    Abstract: We consider an overlapping generation framework with search and private information to study optimal taxation. Agents sequentially trade in markets that are characterized by different frictions and trading protocols. In frictional decentralized markets, agents receive shocks that determine if they are going to be consumers or producers. Shocks are private information. Mechanism design is used to solve for the constrained optimal allocation. We then study whether a government can replicate the constrained optimal allocation with an array of policy instruments including fiat money. We show that if the government has a full set of non-linear taxes, then lump-sum taxes and inflation are irrelevant for the allocation. However, if the government is constrained to use linear taxes, then using the inflation tax is optimal even if lump-sum taxes are available.
    Keywords: Inflation; Monetary Policy; Fiscal Policy
    JEL: E52 E62 H21
    Date: 2017–05–31
  2. By: Aronsson, Thomas (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper surveys research on optimal redistributive taxation in economies with environmental externalities. A major question is whether externality correction only motivates an adjustment of the tax policy rule for the externality-generating activity, or whether the marginal value of the externality directly enters the policy rules for other tax instruments as well. In a static benchmark model with an atmospheric consumption externality, where the government uses a mix of a nonlinear income tax and linear commodity taxes, we show that Sandmo’s (1975) additivity property applies. This means that externality correction leads to an additional term (measuring the marginal value of the externality) in the commodity tax formula for the externality generating good, while the policy rules for commodity taxation of clean goods and marginal income taxation take the same form as in the absence of any externality. We also extend this benchmark model to capture a number of scenarios (such as non-atmospheric externalities, border trade in the externality generating good, and competition between governments in a multi-country framework), where the additivity property no longer applies. We end by examining an intertemporal model of optimal taxation with a stock-externality, allowing us to integrate the study of optimal redistributive taxation with literature on environmental economics and policy based on dynamic models.
    Keywords: Environmental externalities; optimal taxation; redistribution; income taxation; commodity taxation
    JEL: D60 D62 H21 H23 Q51
    Date: 2017–06–19
  3. By: Elenka Brenna (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: In several countries, taxpayers are given the option to detract from gross taxation a share of their out of pocket healthcare expenditure. This paper investigates the use of Healthcare Tax Credits (HTCs) in Italy through the analysis of a panel data which provides information on individual income tax from 2008 to 2014. The study focuses on the disparities emerging in the use of HTCs between Northern and Southern regions: per capita HTCs, either weighted for general population or for the number of claimants, are higher in the North than in the South of Italy. The existing differences in the average income between the two regional clusters may drive to inequalities in the out of pocket expenditure for healthcare services; however, the observed North-South gradient could also reveal possible disparities in the ability of using HTCs, mainly due to socioeconomic factors. A fixed effects OLS model is run to examine the impact of selected socioeconomic variables on regional per capita HTCs, with a particular focus on the role of education. Results corroborate the regressive imprinting of HTCs supported by literature and provide highlights on the role of education in explaining HTCs distribution among regions. Public money is reimbursed to regions where people are on average richer and better educated. More equitable objectives could be reached by allocating the same resources in the provision of services covered by NHS.
    Keywords: Health-related tax credits, regional disparities, healthcare access, personal income tax.
    JEL: I14 H31 H51
    Date: 2017–06
  4. By: Hirota, Haruaki; Yunoue, Hideo
    Abstract: The purpose of this paper is to analyze creative accounting by stock-flow adjustment in Japanese municipalities after the introduction of a new fiscal rule. We contribute to the literature by analyzing the interdependency of the new fiscal indexes, which comprise three flow indexes and one stock index. Our main contribution is the finding that municipalities tolerated an increase in their stock indexes while they decreased their flow indexes by reducing reserved funds to avoid exceeding the criteria of the new fiscal rule, as the stock index criterion is weaker than that of the three flow indexes.
    Keywords: fiscal rule, creative accounting, stock-flow adjustments
    JEL: H72 H74 H77
    Date: 2017–06–20
  5. By: Alastair Thomas; Isabelle Joumard; Tibor Hanappi; Michelle Harding
    Abstract: Business taxation in India is characterised by high effective tax rates, a narrow tax base, and an uncertain tax environment for potential investors. However, India has now begun a process of significant business tax reform, including a staged reduction of the corporate income tax rate and removal of a range of business tax concessions. This paper sets the scene for these (and further) reforms by examining the taxation of business income in India with a particular focus on its impact on the investment climate. The paper calculates corporate effective tax rates to highlight the impact of the tax system on investment incentives, investigates the narrowness of the current tax base and the proposed base-broadening reforms, and examines the degree of investor certainty as to the tax rules and their application. This Working Paper relates to the 2017 OECD Economic Survey of India ( y-india.htm)
    Keywords: India, investment, taxation
    JEL: H2
    Date: 2017–06–23

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