nep-pub New Economics Papers
on Public Finance
Issue of 2018‒09‒10
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Income inequality, redistributive preferences and the extent of redistribution: An empirical application of optimal tax approach By Hannu Tanninena; Matti Tuomalab; Elina Tuominenb
  2. Wealth Taxes and Inequality By Borri, Nicola; Reichlin, Pietro
  3. Optimal Income Taxation in Unionized Labor Markets By Albert Jan Hummel; Bas Jacobs
  4. International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots By Sebastian Beer; Ruud A. de Mooij; Li Liu
  5. Welfare Implications of Switching to Consumption Taxation By Juan Carlos Conesa; Bo Li; Qian Li
  6. Dynamic corrective taxes with time-varying salience By Ben Gilbert; Joshua S. Graff Zivin
  7. Taxation and Development By Moore, Mick
  8. Tax Morale: Framing and Fairness By Phillis Alexander; Merima Balavac; Suranjita Mukherjee; David Massey
  9. Redistribution through Income Taxation and Public Utility Pricing in the Presence of Energy Efficiency Considerations By Fabian Feger; Doina Radulescu
  10. Globalization and Taxation: Theory and Evidence By Priya Ranjan; Giray Gozgor
  11. On the volume of redistribution: Across income levels and across groups By Ravi Kanbur

  1. By: Hannu Tanninena; Matti Tuomalab; Elina Tuominenb
    Abstract: We examine empirically the relationship between the extent of redistribution and the components of the Mirrlees framework, with a focus on inherent inequality and government’s redistributive preferences. We have constructed our income distribution variables from the Luxembourg Income Study (LIS) database, which provides information on both factor and disposable incomes. Our redistributive preference measure is constructed using the optimal tax formula for which we have collected data from various sources. In addition to traditional linear specifications, we use flexible methods to allow nonlinearities because pre-specified functional forms are not easy to justify in empirical investigations of the optimal tax framework. We study 14 advanced countries for approximately four decades and find support for the Mirrlees model: There is a positive relationship between factor-income inequality and the extent of redistribution. We also find a link between our redistributive-preference measure and the extent of redistribution.
    Keywords: -nonlinearity, preferences
    JEL: D31 H3
    Date: 2018–08
  2. By: Borri, Nicola; Reichlin, Pietro
    Abstract: We analyze the optimal combination of wealth and labor tax rates in a model where wealth-to-income ratios and wealth inequality are rising endogenously due to unbalanced technological improvement in a two-sector economy. We consider rich and poor households, financial and housing wealth, and find that a "realistic" optimal steady state tax structure includes some taxation of labor, zero taxation of financial wealth, a housing wealth tax on rich households and a housing wealth subsidy on poor households. These findings are robust with respect to variations in the housing demand elasticity.
    Keywords: Housing; inequality; Wealth; Wealth Taxes
    JEL: E21 E62 G1 H2 H21
    Date: 2018–07
  3. By: Albert Jan Hummel; Bas Jacobs
    Abstract: This paper extends the Diamond (1980) model with labor unions to study optimal income taxation and to analyze whether unions can be desirable for income redistribution. Unions bargain with firms over wages in each sector and firms unilaterally determine employment. Unions raise the efficiency costs of income redistribution, because unemployment benefits and income taxes raise wage demands and thereby generate involuntary unemployment. Optimal unemployment benefits and optimal income taxes are lower in unionized labor markets. We show that unions are socially desirable only if they represent (low-income) workers whose participation is subsidized on a net basis. By creating implicit taxes on work, unions alleviate the labor-market distortions caused by income taxation. Numerical simulations demonstrate that optimal taxes and transfers are much less redistributive in unionized labor markets than in competitive labor markets.
    Keywords: optimal taxation, unions, wage bargaining, labor participation
    JEL: H21 H23 J51 J58
    Date: 2018
  4. By: Sebastian Beer; Ruud A. de Mooij; Li Liu
    Abstract: This paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations. It surveys evidence on main channels of corporate tax avoidance including transfer mispricing, international debt shifting, treaty shopping, tax deferral and corporate inversions. Moreover, it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting. We find that the literature suggests that, for the most recent year, a 1 percentage-point lower corporate tax rate compared to other countries will expand before-tax income by 1.5 percent—an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time. The literature on tax avoidance still has several unresolved puzzles and blind spots that require further research.
    Keywords: corporate taxation, multinationals, profit shifting, international tax avoidance, meta analysis
    JEL: F23 H25
    Date: 2018
  5. By: Juan Carlos Conesa; Bo Li; Qian Li
    Abstract: We evaluate a reform of the US tax system switching to consumption taxation instead of income taxation. We do so in an environment that allows for progressivity of consumption taxes through differential tax rates between basic and non-basic consumption goods. The optimal tax system involves substantial subsidies to the consumption of basic goods. We find large efficiency gains in the long run, with a very small increase in inequality. However, once we consider the transitional dynamics associated to the reform, only very low productivity households and a handful of high productivity low wealth households experience welfare gains.
    Date: 2018
  6. By: Ben Gilbert (Division of Economics and Business, Colorado School of Mines); Joshua S. Graff Zivin (Department of Economics, University of California, San Diego and NBER)
    Abstract: The intermittency of payment for many goods creates a disconnect between paying and consuming such that the marginal price is not always salient when consumption decisions are made. This paper derives optimal dynamic corrective taxes when there are externalities as well as internalities from inattention and persistence in consumption across periods. Our optimal taxes address dynamic inefficiencies that are not captured in static models of inattention. We also characterize a second-best constant tax and the excess burden associated with time-invariant tax rates. We then calibrate the model to U.S. residential electricity consumption.
    Keywords: Salience, Inattention, Optimal Taxes, Energy Demand, Consumption Persistence
    JEL: D03 D11 D62 D91 H21 H23 L97 Q40 Q41 Q50
    Date: 2018–08
  7. By: Moore, Mick
    Abstract: In many discussions of nations' development, we often focus on their economic and social development. Is it becoming wealthier? Is its society modernizing? Is it becoming more technologically sophisticated? Are social outcomes improving for the broad mass of the public? The process of development policy implementation, however, is always and inevitably political. Put simply, regime type matters when it comes to deciding on a course of development to follow. Further, political institutions matter. When a government's institutional capacity is low, the chances of success severely decline, regardless of the merits of the development plan. In The Oxford Handbook of the Politics of Development, two of America's leading political scientists on the issue, Carol Lancaster and Nicolas van de Walle, have assembled an international cast of leading scholars to craft a broad, state-of-the-art work on this vitally important topic.
    Keywords: Governance,
    Date: 2018
  8. By: Phillis Alexander (Department of Accounting, Finance and Economics, Bournemouth University); Merima Balavac (Univerzitiet u Sarajevu); Suranjita Mukherjee (Department of Accounting, Finance and Economics, Bournemouth University); David Massey (University of Central Lancashire)
    Abstract: This paper examines to the relationship between the perception of tax fairness and tax morale conditional on the level of financial and tax literacy (FTL). The findings are based on the survey responses of 627 US or UK citizens in either public or private employment. Using factor analysis, the researchers found that there is a systematic variation of the effect of perceived tax fairness conditional on the FTL. Further, the way in which questions are framed is found to be important. For positively framed tax morale questions, the moderating effect of tax fairness is significantly negative for low levels of FTL candidates and improves with literacy. However, in negatively framed tax morale questions, tax morale is improved as one views that the tax system is fair but the impact is significant for higher levels of literacy. This has further policy implications as the ‘framing’ of tax literature could be instrumental in improving the tax morale of taxpayers.
    Keywords: Income Tax; Tax Morale; Tax Law; Taxability; Tax Compliance
    JEL: K34
    Date: 2018–08
  9. By: Fabian Feger; Doina Radulescu
    Abstract: Many OECD countries such as the USA, the UK or Switzerland are concerned with the affordability of utility services and the distributional consequences inherent in the pricing strategy of basic goods and services, such as electricity. However, the effectiveness of the electricity tariff as a redistribution device is questionable in the presence of a progressive income tax schedule. To shed light on this controversy, we structurally estimate a model that combines public utility pricing and income taxation. We employ a large panel data set on about 105,000 households in the Swiss Canton of Bern from 2008 to 2013, including detailed energy consumption and household income and tax payment characteristics. While the theoretical model predicts that electricity prices should be subsidised in the presence of purely income redistribution concerns, we find a positive mark-up of 49%, in our data. This suggests that, in practice, the government is concerned with energy conservation as well as income redistribution.
    Keywords: redistribution, public utility pricing, energy, asymmetric information
    JEL: D12 D31 H21 H23 H24 L94 L98
    Date: 2018
  10. By: Priya Ranjan (Department of Economics, University of California-Irvine); Giray Gozgor (Istanbul Medeniyet University)
    Abstract: We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization- trade liberalization and financial openness- could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel dataset. We make a distinction between de jure and de facto measures of globalization and find a robust negative relationship between de jure measures financial openness and tax rates. There is no robust relationship between de facto measures of finanical openness and taxation. As well, the relationship between trade liberalization (both de jure and de facto measures) and tax rates is not robust and depends on the measures of taxation as well as the time period of analysis.
    Keywords: Trade liberalization; capital market openness; redistributive taxation; median voter
    JEL: F11 F21 H11
    Date: 2018–08
  11. By: Ravi Kanbur (Cornell University, U.S.A.)
    Abstract: The optimal income taxation literature focuses on the tradeoff between the equity gains of higher progressivity versus its greater incentive costs at the individual level. This paper highlights a neglected aspect of redistribution—greater progressivity requires a higher volume of gross redistributive flows, across income levels. If these flows are costly to manage, administratively or politically, then progressivity will be lower. Moreover if redistribution across income levels implies redistribution across socio-politically salient groups because of the way in which these groups line up relative to the income distribution, this can be an added cost in the objective function and progressivity is further disadvantaged. The paper develops a simple framework in which these questions can be addressed. Among the many interesting results is that when the capacity for the volume of redistributive flows, across income levels or across socio-political groups, is reached, an increase in market inequality can lead to a fall in progressivity in the tax-transfer regime without any change in the government’s preferences for equity. A focus on the volume of redistribution thus opens up an important set of theoretical and empirical questions for analysis and for policy.
    Keywords: Volume of redistribution, administrative costs of redistribution, progressivity, socio-politically salient groups, political costs of redistribution.
    JEL: D31 D63 H21 H24
    Date: 2018–04

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