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on Public Finance |
| By: | Sören Blomquist; Whitney K. Newey |
| Abstract: | Saez (2010) introduced an influential estimator that has become known as the bunching estimator. Using this method one can get an estimate of the taxable income elasticity from the bunching pattern around a kink point. The bunching estimator has become popular, with a large number of papers applying the method. In this paper, we show that the bunching estimator cannot identify the taxable income elasticity when the functional form of the distribution of preference heterogeneity is unknown. We find that an observed distribution of taxable income around a kink point in a budget set can be consistent with any taxable income elasticity if the distribution of heterogeneity is unrestricted. If one is willing to assume restrictions on the heterogeneity density some information about the taxable income elasticity can be obtained. We give bounds on the taxable income elasticity based on monotonicity of the heterogeneity density and apply these bounds to the data in Saez (2010). We also consider identification from budget set variation. We find that kinks alone are still not informative even when budget sets vary. However, if the taxable income specification is restricted to be of the parametric isoelastic form assumed in Saez (2010) the taxable income elasticity can be well identified from variation among linear segments of budget sets. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6736&r=pub |
| By: | Francesca Greselin (Department of Statistics and Quantitative Methods, University of Milan-Bicocca, Italy); Simone Pellegrino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Achille Vernizzi (Department of Economics, Management and Quantitative Methods, University of Milan, Italy) |
| Abstract: | In this paper we introduce a new methodology to study the degree of progression as well as the redistributive and re-ranking effects of a personal income tax system by employing and extending the new inequality curve (and index) proposed by Michele Zenga. Given an income distribution, the Zenga curve compares the economic conditions of two exhaustive groups of population obtained by dividing the overall population at all possible percentiles, from the bottom to the top observed income. Since the recent literature underlines that the Zenga curve shows features that are different from the standard approach based on the Lorenz curves, we show the potentialities of the new curve when studying the effects exerted by a personal income tax. This new methodology is compared to the classical one by a stylized example and by developing an application to Italian personal income tax data. |
| Keywords: | Personal Income Tax, Gini Index, Microsimulation Models, Reynolds-Smolensky Index, Kakwani index, Zenga Index. |
| JEL: | H23 H24 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:046&r=pub |
| By: | Simone Pellegrino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Achille Vernizzi (Department of Economics, Management and Quantitative Methods, University of Milan, Italy) |
| Abstract: | The overall tax revenue of a real-world personal income tax cannot be eventually paid only by the richest taxpayer. Therefore, the maximum concentration coefficient for taxes cannot be equal to 1, and, consequently, the maximum value of the Kakwani index cannot be 1 minus the Gini coefficient for pre-tax incomes, as generally described in the related literature. We give evidence of this phenomenon by illustrating a theoretical example, and by evaluating its maximum value when a real-world tax is considered. |
| Keywords: | Kakwani index, Redistributive effect, Personal income tax, Microsimulation models. |
| JEL: | H23 H24 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:047&r=pub |
| By: | Rao, M. Govinda (National Institute of Public Finance and Policy) |
| Abstract: | The paper analyses important issues in Indian public finance in the context of the India’s economic development. Given the predominance of working population and with children in the age group 0-14 constituting over 40 per cent of the population, government finance has a critical role not only in protecting life and property but also in creating physical infrastructure to expand economic activities to generate employment opportunities and in providing social infrastructure to empower them to get productively employed. The analysis public spending, however, shows that spending on education and healthcare is woefully inadequate and expenditures on interest payments, subsidies and transfers have crowded out spending on physical and social infrastructures. The reasons for the above phenomenon have to be found in the low levels of taxation apart from lopsided priorities. Based on the 98 country average behaviour, the paper shows that the tax–GDP ratio in the country is lower by 2-3 percentage points for its level of per capita GDP. The reasons for the low tax ratio have to be found in the exemption to agricultural incomes, widespread tax preferences due to multiple objectives loaded into tax policy, tax abuse by multinationals and poor tax administration. The low tax collections are also the reasons for the persistence of large deficits and debt. Despite passing the FRBM Act to follow the rule based fiscal policy, containing the government deficits and debt has continued to be a major challenge and the targets are diluted, new concepts created and repeatedly postponed. The paper argues that there is a strong case for creating a fiscal council by amending the FRBM Act and it is should be appointed by the Parliament and should be reporting to it as recommended by the Fourteenth Finance Commission. This is in contrast to the Fiscal Review Committee’s recommendation according to which the Fiscal council should be appointed by the Finance Ministry and should report to it. |
| Keywords: | Taxation and subsidies General |
| JEL: | H20 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:17/219&r=pub |