nep-pub New Economics Papers
on Public Finance
Issue of 2017‒09‒24
nine papers chosen by

  1. Optimal taxation under different concepts of justness By Jessen, Robin; Metzing, Maria; Rostam-Afschar, Davud
  2. Optimal income taxation with composition effects By Jacquet, Laurence M.; Lehmann, Etienne
  3. Optimal Taxation to Correct Job Mismatching By Guillaume Wilemme
  4. The Impact of Taxes and Transfers on Skill Premium By Shuhei Takahashi; Ken Yamada
  5. Should Robots be Taxed? By Joao Guerreiro; Sergio Rebelo; Pedro Teles
  6. Fiscal Stimulus and Fiscal Sustainability By Alan J. Auerbach; Yuriy Gorodnichenko
  7. The development of corporate tax structures in the European Union from 1998 to 2015 - Qualitative and quantitative analysis By Bräutigam, Rainer; Spengel, Christoph; Stutzenberger, Kathrin
  8. Optimal fiscal equalisation and its application to Australia By Chris Murphy
  9. Effective corporate tax burden and firm size in South Africa: A firm-level analysis By Marco Carreras; Purnachandar Dachapalli; Giulia Mascagni

  1. By: Jessen, Robin; Metzing, Maria; Rostam-Afschar, Davud
    Abstract: A common assumption in the optimal taxation literature is that the social planner maximizes a welfarist social welfare function with weights decreasing with income. However, high transfer withdrawal rates in many countries imply very low weights for the working poor in practice. We reconcile this puzzle by generalizing the optimal taxation framework by Saez (2002) to allow for alternatives to welfarism. We calculate weights of a social planner's function as implied by the German tax and transfer system based on the concepts of welfarism, minimum absolute and relative sacrifice, as well as subjective justness. For the latter we use a novel question from the German Socio-Economic Panel. We find that the minimum absolute sacrifice principle is in line with social weights that decline with net income. Absolute subjective justness is roughly in line with decreasing social weights, which is reflected by preferences of men, West Germans, and supporters of the grand coalition parties.
    Keywords: Justness,Optimal Taxation,Income Redistribution,Equal Sacrifice,Inequality,Subjective Preferences
    JEL: D63 D60 H21 H23 I38
    Date: 2017
  2. By: Jacquet, Laurence M.; Lehmann, Etienne
    Abstract: We study the optimal nonlinear income tax problem with multidimensional individual characteristics on which taxes cannot be conditioned. We obtain an optimal tax formula that generalizes the standard one by averaging, with specific weights, the sufficient statistics of individuals who earn the same income. Our first main contribution consists in showing that multidimensional heterogeneity brings a new source of endogeneity to the sufficient statistics that we call composition effects. We highlight that composition effects may substantially affect optimal marginal tax rates. Our results put the stress on the need for empirical studies on sufficient statistics for different demographic groups e.g., according to gender, age, ethnicity. As a second main contribution, we show the equivalence between the tax perturbation and mechanism design approaches which bridges the gap between both methods that have, so far, been used separately in the literature.
    Keywords: allocation perturbation; multidimensional screening problems; optimal taxation; sufficient statistics.; tax perturbation
    Date: 2017–09
  3. By: Guillaume Wilemme (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille)
    Abstract: This paper presents a new efficiency argument for an accommodating taxation policy on high incomes. Job seekers, applying to different segments of a frictional labor market, do not internalize the consequences of mismatch on the entry decision of firms. Workers are not selective enough, resulting in a lower average job productivity and suboptimal job creation. The output-maximizing policy is anti-redistributive to improve the quality of the jobs prospected. As an income tax affects the sharing of the match surplus, a tax on production (or profits) is required to redress the slope of the wage curve. Neither a minimum wage nor unemployment benefits can fully decentralize optimal search behaviors.
    Keywords: anti-redistributive taxation, composition externality, job quality, mismatch, search strategy
    JEL: H21 H23 J24 J42
    Date: 2017–06
  4. By: Shuhei Takahashi (Institute of Economic Research, Kyoto University); Ken Yamada (Faculty of Economics,Kyoto University)
    Abstract: The level of wage inequality has varied across advanced industrial countries. One of the main reasons has been a significant difference in the skill wage premium. This study analyzes the impact of taxes and transfers on the skill wage premium and social welfare in the context of a heterogeneous-agents incomplete-markets model, in which the population consists of skilled workers and unskilled workers, and the production technology exhibits capital-skill complementarity. The analysis indicates that a significant fraction of the difference in the skill wage premium between the United States and Japan can be accounted for by differences in the tax system.
    Keywords: Skill premium, capital-skill complementarity, incomplete markets, capital income taxation, composition effect
    JEL: E13 E24 E62 H24 J31
    Date: 2017–08
  5. By: Joao Guerreiro; Sergio Rebelo; Pedro Teles
    Abstract: We use a model of automation to show that with the current U.S. tax system, a fall in automation costs could lead to a massive rise in income inequality. This inequality can be reduced by raising marginal income tax rates and taxing robots. But this solution involves a substantial efficiency loss for the reduced level of inequality. A Mirrleesian optimal income tax can reduce inequality at a smaller efficiency cost, but is difficult to implement. An alternative approach is to amend the current tax system to include a lump-sum rebate. In our model, with the rebate in place, it is optimal to tax robots only when there is partial automation.
    JEL: H21 O33
    Date: 2017–09
  6. By: Alan J. Auerbach; Yuriy Gorodnichenko
    Abstract: The Great Recession and the Global Financial Crisis have left many developed countries with low interest rates and high levels of public debt, thus limiting the ability of policymakers to fight the next recession. Whether new fiscal stimulus programs would be jeopardized by these already heavy public debt burdens is a central question. For a sample of developed countries, we find that government spending shocks do not lead to persistent increases in debt-to-GDP ratios or costs of borrowing, especially during periods of economic weakness. Indeed, fiscal stimulus in a weak economy can improve fiscal sustainability along the metrics we study. Even in countries with high public debt, the penalty for activist discretionary fiscal policy appears to be small.
    JEL: E62 H62
    Date: 2017–09
  7. By: Bräutigam, Rainer; Spengel, Christoph; Stutzenberger, Kathrin
    Abstract: Ongoing tax reform processes, competitive pressures and the consequences of the financial and sovereign debt crisis have considerably shaped the tax systems of the Member States of the European Union in the last two decades. Our paper combines a qualitative and quantitative analysis of the development of European tax structures based on a unique and comprehensive dataset for the EU-25 Member States between 1998 and 2015. Especially among the EU-15 Member States, we still find evidence for the often-cited trend of tax rate cut cum tax base broadening. In this context, we identify interest deduction limitation rules and loss provisions as main drivers of tax base broadening. Furthermore, the quantitative analysis of effective tax burden scenarios shows that Member States seem to additionally rely on an increased taxation of dividends to balance possible revenue losses associated with reduced corporate income tax rates.
    Keywords: Tax Policy,Corporate Taxation,European Union
    JEL: H20 H25 K34
    Date: 2017
  8. By: Chris Murphy
    Abstract: The first part of this paper develops a theoretical model of fiscal equalisation and uses the model to derive an optimal equalisation formula that has general applicability for federations. If vertical equity is achieved by the central government and horizontal equity by interstate migration, the role of fiscal equalisation is to support an efficient distribution of different labour types across states. The theoretical model draws on Boadway and Flatters (1982) and Albouy (2012), with some Australian-oriented extensions. The resulting optimal formula implies that full equalisation should be applied for the fixed costs of state government and for source-based taxes on natural resources, land and capital. However, equalisation should only correct for difference in fiscal capacities arising from state demographic mixes when applied to the variable costs of state government, residence-based taxes on labour and consumption taxes. Simplifying assumptions of the model are discussed. The second part of this paper applies the optimal equalisation approach to Australia, using the Commonwealth Grants Commission (CGC) assessment for 2017/18 as a base. The effects on consumer welfare of moving from the current Australian full equalisation system to optimal equalisation, partial equalisation or no equalisation are estimated, along with the associated impacts on state populations.
    Keywords: fiscal equalisation, Federalism, Intergovernmental relations, Australia
    JEL: D61 H77 J61
    Date: 2017
  9. By: Marco Carreras; Purnachandar Dachapalli; Giulia Mascagni
    Abstract: We investigate the relationship between the corporate income tax burden and firm size in South Africa using a panel dataset from companies’ tax returns. We find that medium-sized companies are experiencing the lowest effective tax rate, while the smallest companies are facing the highest effective tax rate.
    Date: 2017

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