nep-pub New Economics Papers
on Public Finance
Issue of 2018‒05‒28
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Smooth income tax schedules: derivation and consequences By Estévez Schwarz, Diana; Sommer, Eric
  2. Corporate Profit Taxes, Capital Expenditure and Real Wages: The analytics behind a contentious debate By Buiter, Willem H.; Sibert, Anne
  3. Tax in Development: Towards a Strategic Aid Approach By Lundstøl, Olav

  1. By: Estévez Schwarz, Diana; Sommer, Eric
    Abstract: Existing tax schedules are often overly complex and characterized by discontinuities in the marginal tax burden. In this paper we propose a class of progressive smooth functions to replace personal income tax schedules. These functions depend only on three meaningful parameters, and avoid the drawbacks of defining tax schedules through various tax brackets. Based on representative micro data, we derive revenue-neutral parameters for four different types of tax regimes (Austria, Germany, Hungary and Spain). We then analyze possible implications from a hypothetical switch to smoother income tax tariffs. We find that smooth tax functions eliminate the most extreme cases of bracket creep, while the impact on income inequality is mostly negligible, but uniformly reducing.
    Date: 2018–05–21
  2. By: Buiter, Willem H.; Sibert, Anne
    Abstract: The recent reduction in the US corporate profit tax rate from 35 percent to 21 percent has triggered renewed interest in the impact of a cut in the corporate tax rate on capital accumulation and real wages. This theoretical contribution demonstrates that the familiar proposition that a cut in the corporate profit tax rate boosts the capital intensity of production and the real wage is sensitive to a number of key assumptions. Even when the real interest rate is exogenously given, full deductibility of capital expenditure from the corporate profit tax base will result in no impact of a corporate profit tax rate cut on the incentive to invest. Adding deductibility of interest can result in a negative effect on the capital intensity of production of a corporate profit tax rate cut. When the real interest rate is endogenous, we use the "perpetual youth" OLG model to demonstrate that the effects on consumption demand of a corporate profit tax cut will reduce the impact on capital intensity of a corporate profit tax cut if the tax cut is funded by higher lump-sum taxes on "permanent income" households. We have not been able to find examples where the capital intensity impact is reversed. Alternative funding rules (e.g. lower public consumption purchases) and the introduction of "Keynesian" consumers could lead to a larger positive effect on capital intensity from a cut in the corporate profit tax rate.
    Keywords: corporate profit tax; expensing; capital expenditure; OLG model.; Public Finance; taxation
    JEL: E21 E22 E62 E63 H2 H25 H3
    Date: 2018–05
  3. By: Lundstøl, Olav
    Abstract: Raising a higher share of the value added in an economy for the public purpose is associated with state building, modern economic growth and development. From 2002-3 to date, low- and lower-middle income countries raised total tax and non-tax revenue from 11-12 per cent and 18-19 per cent of GDP up to 17-18 per cent and 25-26 per cent of GDP in 2014-15. Continuing to improve tax systems is key to realising the development dividend available today through improved technology and institutions, whereby it is possible to raise living standards faster and at lower cost. The remaining development challenges are significant for the majority of the world’s population and therefore the Sustainable Development Goals (SDGs) were agreed in 2015 to address these challenges. The majority of the financing for the SDGs must come from domestic sources (as it did with the Millennium Development Goals, with a 77 per cent share). This being the case, it is surprising that in 2015 only 0.13 per cent of global official development assistance was utilised to promote improved tax and revenue systems. With the Addis Ababa Agenda and the Addis Tax Initiative, this is changing, and several donors and partners are in the process of scaling up support to domestic resource mobilisation and tax system reforms. Therefore, it is of relevance to share some thoughts on the underlying objectives and justification for raising domestic revenues, experiences with revenue and tax-related aid, and a first-level layer framework for assessment of potential partner countries (low- and lower-middle). A ranking exercise is presented, utilising some key economic indicators such as income, poverty, financing levels of expenditure and investment (domestic and foreign), tax effort, tax aid, and a political and institutional assessment. This paper finds a significant group of developing countries that receive limited assistance and have both large needs and large potential in terms of tax and revenue. The top ten countries are in sub-Saharan Africa. Links are provided to the Norwegian partner country categorisation to illustrate the correlation between these two types of country ranking/prioritisation. Finally, other factors relating to donor-partner analysis and dialogue are discussed, including political and administrative prioritisation of revenue reforms, absorptive capacity in institutions, and the likelihood of particular interventions delivering results.
    Keywords: Governance,
    Date: 2018
  4. By: ALEXANDRU Dana Georgeta (Lucian Blaga University of Sibiu)
    Abstract: This paper is intended to identify and assess with a critical eye some of the challenges that lie ahead on the road to decentralization in the Romanian administrative space. The article offers a look into the mechanisms and instruments of Romanian decentralization system and outlines the gap between a syncopeted decentralization system and the public administration activities. The diversity of concepts and skills, related to decentralization launched in the European Administrative Space, results in decreased rigidity of existing state organizations, encouraging local government to explore new forms of decentralization and cooperation. The analysis of the local government allowed us to identify the place of the community in relation to the central apparatus of the state, meaning its inclusion in the local government sub-system, in terms of territorial structure. The research aimed the way local government were built and configured, focusing on the principle of decentralization and local autonomy, which is the basis of these institutions and reveals local democracy. A final section covers the study on the complexity of legal relations established between the state, local government and Governors. In summary, the purpose of the paper is to stimulate the reflection on how the local government change their position in the administrative space, within a complex process that increases the role of local government, the inter-institutional changes and democratization of the local administrative system.
    Keywords: decentralization, local government, european administrative space
    JEL: H70 H70 H70
    Date: 2018–04

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