nep-pub New Economics Papers
on Public Finance
Issue of 2018‒04‒16
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. 'Optimal Fiscal Policy with Consumption Taxation' By Giorgio Motta; Raffaele Rossi
  2. Optimal Taxation in a Unionised Economy By Vidar Christiansen; Ray Rees
  3. Tax Incentives in Cambodia By Manuk Ghazanchyan; Alexander D Klemm; Yong Sarah Zhou

  1. By: Giorgio Motta; Raffaele Rossi
    Abstract: We characterise optimal fiscal policies in a tractable Dynamic General Equilibrium model with monopolistic competition and endogenous public spending. The government has access to consumption taxation, as alternative to labour income taxes. Consumption taxation acts as indirect taxation of profits (intratemporal gains of taxing consumption) and enables the policy-maker to manage the burden of public debt more efficiently (intertemporal gains of taxing consumption). We show analytically that these two gains imply that the optimal share of government spending is higher under consumption taxation than with labour income taxation. Then, we quantify numerically each of these gains on households’ welfare by calibrating the model on the US economy.
    Date: 2018
  2. By: Vidar Christiansen; Ray Rees
    Abstract: Unions appear to have an aversion to wage disparities among their members, leading to wage compression. This paper analyses the consequences of this for income tax policy. In a two-sector general equilibrium model we highlight the tradeoff between correcting the resource misallocation created by wage compression and the government’s distributional objectives. Where the union’s aversion to wage dispersion is strong, tax policy can do little to correct the distortion in the supply of trained labour, though it can come closer to achieving distributional aims. Where wage compression is less pronounced, tax policy can have significant effects on resource misallocation, at the expense of its distributional goals.
    Keywords: income taxation, optimal taxation, unionized economy, wage compression
    JEL: H21 H24
    Date: 2018
  3. By: Manuk Ghazanchyan; Alexander D Klemm; Yong Sarah Zhou
    Abstract: Cambodia, like its regional peers, offers a number of tax incentives to investors. This paper reviews these incentives to assess their costs and benefits, including their likely effectiveness in attracting capital and in supporting the diversification strategy. It finds that an important incentive, the tax holiday, differs materially from practice elsewhere in offering a deferral rather than exempting from tax and may not be very effective. Moreover, other features of the tax system, such as the high withholding rate on dividends, imply relatively high effective tax rates for foreign investors. The paper discusses potential reforms that weigh revenue and other costs of tax incentives against the need for a competitive tax system, including a shift from tax holidays toward investment allowances.
    Date: 2018–03–29

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