nep-pub New Economics Papers
on Public Finance
Issue of 2018‒04‒30
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Time-Consistent Consumption Taxation By Sarolta Laczo; Raffaele Rossi
  2. Social status, preferences for redistribution and optimal taxation: A survey By Gallice, Andrea
  3. The Near Term Growth Impact of the Tax Cuts and Jobs Act By Mertens, Karel
  4. Corporate governance, tax evasion and business cycles By Gilbert Mbaraa; Ryszard Kokoszczyński
  5. The effects of official and unofficial information on tax compliance By Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques
  6. Dynamic tax revenue buoyancy estimates for a panel of OECD countries By Deli, Yota; Rodriguez, Abian Garcia; Kostarakos, Ilias; Varthalitis, Petros
  7. A European Net Wealth Tax By Alexander Krenek; Margit Schratzenstaller
  8. VAT and Agriculture: Lessons from Europe By Sijbren Cnossen
  9. Intergovernmental Fiscal Reform in China By Philippe Wingender

  1. By: Sarolta Laczo (Queen Mary University of London); Raffaele Rossi (University of Manchester, Department of Economics)
    Abstract: We characterise optimal tax policies when the government has access to consumption taxation and cannot credibly commit to future policies. We consider a neoclassical economy where factor income taxation is distortionary within the period, due to endogenous labour and capital utilisation and non-tax-deductibility of depreciation. Contrary to the case where only labour and capital income are taxed, the optimal time-consistent policies with consumption taxation are remarkably similar to their Ramsey counterparts. The welfare gains from commitment are negligible, while they are substantial without consumption taxation. Further, the welfare gains from taxing consumption are much higher without commitment.
    Keywords: fiscal policy, Markov-perfect policies, consumption taxation, variable capital utilisation
    JEL: E62 H21
    Date: 2018–04–12
  2. By: Gallice, Andrea
    Abstract: The author reviews recent studies of how social status concerns influence individual preferences for redistribution and impact the design of optimal tax policies. He focuses on two aspects: the relevant dimension over which relative concerns are defined and the different formalizations of the notion of social status that the authors provide.
    Keywords: social status,redistribution,externalities,optimal taxation
    JEL: D31 D62 H21 H23
    Date: 2018
  3. By: Mertens, Karel (Federal Reserve Bank of Dallas)
    Abstract: This note uses existing empirical estimates of the macroeconomic effects of tax changes to project the near term impact of the Tax Cuts and Jobs Act on US GDP growth. Applying recent reduced form estimates of tax multipliers with the projected revenue impact of the Act yields a level of GDP that is predicted to be 1.3% higher by 2020, with most of the growth front-loaded in 2018. Accounting for the composition of the Act in terms of its individual and corporate provisions leads to a similar GDP increase by 2020, but with stronger growth in 2018 and a partial reversal in the following years. Accounting for the impact of TCJA on marginal individual tax rates raises the projected growth impact considerably, while accounting for the distribution of the tax changes across income groups suggests a more delayed positive impact on GDP. These projections are conditional on mean-reverting dynamics of future taxes that are estimated from postwar US data.
    Keywords: Fiscal policy; Taxation; Tax Cuts and Jobs Act
    JEL: E62 H2
    Date: 2018–03–23
  4. By: Gilbert Mbaraa (Faculty of Economic Sciences, University of Warsaw); Ryszard Kokoszczyński (Faculty of Economic Sciences, University of Warsaw, Narodowy Bank Polski)
    Abstract: We develop an agency model of corporate tax evasion and auditing by a residual claimant government and embed it to a macroeconomic environment characterised by credit constraints. In our economy, tax auditing by the government reduces the information asymmetry between lenders and entrepreneurs with an investment opportunity. Corporate governance quality consequently affects macroeconomic variables; with changes in tax rates, auditing and quality of corporate governance having aggregate effects. We show that changes in the revenue system; tax and audit rates, can directly affect asset prices and inflate the effects of exogenous shocks to the economy.
    Keywords: corporate governance, credit constraints, taxation, asset pricing, tax evasion, agency problem
    JEL: H2 H26 H3 E13 E26 J81
    Date: 2018
  5. By: Filomena Garcia (Indiana University, & UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, & UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management)
    Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham-Sandmo-Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects.
    Keywords: Tax morale, Information, Tax evasion, Experiment, Peer Effects
    JEL: H26 D63 C24 C92 Z13
    Date: 2018–04
  6. By: Deli, Yota; Rodriguez, Abian Garcia; Kostarakos, Ilias; Varthalitis, Petros
    Date: 2018
  7. By: Alexander Krenek; Margit Schratzenstaller (WIFO)
    Abstract: The increase of wealth inequality in many EU countries has spurred interest in wealth taxation. While taxes on wealth for a long time have played only a marginal role in the public finance and taxation literature, more recently a variety of arguments are brought forward in favour of (higher) wealth taxation. At the same time, tax competition has led to an almost complete disappearance of recurrent net wealth taxes in Europe. By dealing with non- and under-reporting in the Household and Consumption Survey (HFCS) data set provided by the European Central Bank, we are able to estimate the wealth distribution within 20 EU countries and the revenue potential of a progressive EU-wide net wealth tax.
    Keywords: F55, H24, H87
    Date: 2018–04–15
  8. By: Sijbren Cnossen (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Little has been written about the treatment of agriculture under the value added tax (VAT). This article attempts to fill the void by surveying and evaluating the situation in the Member States of the European Union (EU) and some other countries. Farmers are often exempted from VAT for administrative and political reasons. But this means that the VAT on their inputs cannot be ‘washed out’ through the tax deduction/credit mechanism. It then has to be borne by the farmers themselves or becomes an indeterminate and capricious element in consumer prices. To compensate farmers for the uncompensated VAT on inputs, the EU has devised a flat-rate scheme that permits them to charge a presumptive rate (approximately equal to the effective VAT rate on sector-wide inputs) on their sales to taxable agro-processing firms which, in turn, are permitted to take a deduction for this flat-rate addition from the VAT on their sales. Obviously, the flat-rate scheme is an arbitrary way of trying to achieve equal treatment between exempt and taxable farmers and between exempt farm products and other taxable goods and services. Full taxation, subject to the general threshold, appears to be the preferred choice.
    JEL: H22 H25
    Date: 2017–01
  9. By: Philippe Wingender
    Abstract: China is the most decentralized country in the world in terms of expenditures shares, with subnational governments responsible for 85 percent of government spending. Limited revenue autonomy and insufficient intergovernmental transfers have led to large unfunded mandates and a build-up of debt outside the budget. The government has recently announced an ambitious intergovernmental fiscal reform, which will increase the role of the central government. Comprehensive reform is needed to improve public service delivery, increase overall social spending levels and reduce regional disparities. Revenue reforms are also necessary to improve efficiency and reduce vulnerabilities from excessive subnational borrowing. These reforms are challenging, but are crucial so that the government can support China’s continued development and prosperity.
    Date: 2018–04–13

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