nep-pub New Economics Papers
on Public Finance
Issue of 2017‒12‒18
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Do the rich pay their taxes early? By Fischer, Andreas M; Zachmann, Lucca
  2. Higher Taxes at the Top: The Role of Entrepreneurs By Bettina Brueggemann
  3. Production Efficiency and Profit Taxation By Stéphane Gauthier; Guy Laroque
  4. Taxation and self-employment By Zsófia L. Bárány
  5. Ramsey Taxation in the Global Economy By Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro
  6. Inheritance Taxation: Redistribution and Predistribution By Frank A Cowell; Chang He; Dirk Van de gaer
  7. Social Insurance and Occupational Mobility By Cubas, German; Silos, Pedro
  8. Fiscal policy with an informal sector By Harris Dellas; Dimitris Malliaropulos; Dimitris Papageorgiou; Evangelia Vourvachaki
  9. Study and Reports on the VAT Gap in the EU-28 Member States: 2017 Final Report By Grzegorz Poniatowski; Mikhail Bonch-Osmolovskiy; Misha V. Belkindas

  1. By: Fischer, Andreas M; Zachmann, Lucca
    Abstract: This paper examines the distributional effects of interest credits from early tax payments on average household income at the municipality level. The hypothesis that households from high-income municipalities pay their income taxes early is tested in a demand specification for interest credit for early tax payments. The empirical analysis considers regional data from 170 municipalities in the canton of Zurich from 2007 to 2013. The income elasticity of interest credit for early tax payments is estimated to be near unity for the top 5th percentile of average household income, whereas the same elasticity is below one-half for the lower 95th percentile and is statistically insignificant. The finding that high-income households pay their taxes early supports the view that the rich are not liquidity constrained. Early tax payments make the tax system more regressive for high-income households.
    Keywords: demand for interest credit on early tax payment; early tax payment
    JEL: D14 D30 E21 E41 H31
    Date: 2017–12
  2. By: Bettina Brueggemann
    Abstract: This paper computes optimal top marginal tax rates in Bewley- Aiyagari type economies that include entrepreneurs. Consistent with the data,entrepreneurs are over-represented at the top of the income distribution and are thus disproportionately affected by an increase in the top marginal income tax rate. The statutory top marginal tax rate that maximizes welfare is 75 percent and revenue is maximized at 85 percent. While average welfare gains are positive, they are larger for entrepreneurs than for workers and the occupational gap in welfare gains widens with increasing income.
    Date: 2017–11–20
  3. By: Stéphane Gauthier (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Guy Laroque (Sciences-Po - Département d'Economie, UCL - University College of London [London], Institute for Fiscal Studies)
    Abstract: Consider a simple general equilibrium economy with one representative consumer, a single competitive firm and the government. Suppose that the government has to finance public expenditures using linear consumption taxes and/or a lump-sum tax on profits redistributed to the consumer. This note shows that, if the tax rate on profits cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less efficient profit-generating decreasing returns to scale technology.
    Keywords: optimal taxation,taxation of profits,production efficiency
    Date: 2017–10
  4. By: Zsófia L. Bárány
    Abstract: In this paper I theoretically show that if the self-employed evade income taxes, then the choice of being self-employed is more sensitive to the tax rates on wages than to tax rates on income from self-employment. Using variation in the statutory tax rates across countries, industries, and occupations, I find evidence that supports the predictions of the model. This suggests that those who choose self-employment, partly do so to take advantage of the technology it offers in evading taxes. This extensive margin of adjustment – between employment and self-employment – should be taken into account when considering the effects of tax rates on labor income, on taxable income and on welfare.
    Date: 2017–11
  5. By: Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal)
    Abstract: We study cooperative optimal Ramsey equilibria in the open economy addressing classic policy questions: Should restrictions be placed to free trade and capital mobility? Should capital income be taxed? Should goods be taxed based on origin or destination? What are desirable border adjustments? How can a Ramsey allocation be implemented with residence-based taxes on assets? We characterize optimal wedges and analyze alternative policy implementations.
    Keywords: Capital income tax; Free trade; Value-added taxes; Border adjustment; Origin- and destination-based taxation; Production efficiency
    JEL: E60 E61 E62
    Date: 2017–12–11
  6. By: Frank A Cowell; Chang He; Dirk Van de gaer
    Abstract: It is well known that taxes on the transfer of wealth typically raise very little revenue. However, this does not mean that they are ineffective as tools for redistribution. In this paper we show how important such taxes can be in the long-run distribution of wealth, reducing equilibrium inequality (the "predistribution" effect) by a much larger amount than what is apparent in terms of the immediate impact of the tax (the "redistribution" effect).
    Keywords: wealth distribution, inheritance, inheritance taxation
    JEL: D31 D63
    Date: 2017–12
  7. By: Cubas, German; Silos, Pedro
    Abstract: This paper studies how insurance from progressive taxation improves the matching of workers to occupations. We propose an equilibrium dynamic assignment model to illustrate how social insurance encourages mobility. Workers experiment to find their best occupational fit in a process filled with uncertainty. Risk aversion and limited earnings insurance induce workers to remain in unfitting occupations. We estimate the model using microdata from the United States and Germany. Higher earnings uncertainty explains the U.S. higher mobility rate. When workers in the United States enjoy Germany’s higher progressivity, mobility rises. Output and welfare gains are large.
    Keywords: Progressive Taxation, Social Insurance, Occupational Choice
    JEL: E21 H24 J31
    Date: 2017–12
  8. By: Harris Dellas (University of Bern); Dimitris Malliaropulos (Bank of Greece); Dimitris Papageorgiou (Bank of Greece); Evangelia Vourvachaki (Bank of Greece)
    Abstract: Macroeconomic models that omit the shadow economy systematically mis-forecast and mis-measure the effect of fiscal –in particular tax– policy on economic activity and tax revenue. We add an informal sector to the Bank of Greece DSGE model and use the actual package of fiscal consolidation implemented in Greece over the period 2010–2015 to evaluate the role of the black economy. In the data, official Greek GDP declined by about 26%, budget deficits proved larger and more persistent and tax rates increased by much more and tax revenue by much less than predicted. The model replicates the official output decline but implies a true output decline that is less than two thirds of that in recorded output. The discrepancy is even more pronounced for employment. The model also implies that the size of fiscal adjustment and the drop in economic activity could have been considerably milder had the informal sector been curtailed (it instead increased by about 50%). The underground economy seems to have been a key factor in Greece’s failure to achieve orderly debt consolidation while avoiding economic depression.
    Keywords: Shadow economy; fiscal consolidation, multipliers, tax revenue, true output
    JEL: E26 E32 E62 E65 H26 H68
    Date: 2017–10
  9. By: Grzegorz Poniatowski; Mikhail Bonch-Osmolovskiy; Misha V. Belkindas
    Abstract: This analysis serves as the Final Report for the DG TAXUD Project 2015/CC/131, “Study and Reports on the VAT Gap in the EU-28 Member States”, which is a follow up to the reports published in 2013, 2014, 2015, and 2016. We present new estimates of the VAT Gap and the Policy Gap for the year 2015, as well as updated estimates for the years 2011?2014. This report provides first estimates of the VAT Gap for Cyprus, using the newly revised national accounts data from the Cyprus Statistical Agency. The VAT Gap is the difference between the amount of VAT revenue actually collected and the theoretical amount that is expected to be collected, given the observed information on the country’s economy and the actual VAT legislation. The amount of VAT total theoretical liability, known as VTTL, is calculated using the so-called “top-down” approach: the national VAT rate structure is imposed on the national accounts expenditure and investment data at the most detailed level possible to derive expected liability
    Keywords: consumption taxation, VAT, tax fraud, tax evasion, tax avoidance, tax gap,tax non-compliance, policy gap
    JEL: H24 H26
    Date: 2017

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