nep-pub New Economics Papers
on Public Finance
Issue of 2018‒10‒08
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Jointly Optimal Taxes for Different Types of Income By Johannes Hermle; Andreas Peichl
  2. Income taxation of couples, spouses' labor supplies and the gender wage gap By Cremer, Helmuth; Roeder, Kerstin
  3. Implications of Lower Trend Productivity Growth for Tax Policy By Karen Dynan
  4. Factors for the formation of inefficient states when using tax incentive regimes By Sokolovskyi, Dmytro
  5. A Game of Tax Evasion: evidences from an agent-based model By L. S. Di Mauro; A. Pluchino; A. E. Biondo
  6. The Exorbitant Tax Privilege By Thomas Wright; Gabriel Zucman
  7. Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs By Fabian Kindermann; Lukas Mayr; Dominik Sachs
  8. Linking Tax Morale and Personal Income Tax in Spain By Pilar Rey del Castillo; Jaime Villanueva-Garcia

  1. By: Johannes Hermle; Andreas Peichl
    Abstract: We develop and estimate a model of jointly optimal income taxes for different types of income. Compared to standard optimal tax formulas, optimal schedular income tax rates additionally depend on cross-elasticities between tax bases capturing fiscal externalities. We discuss two applications: the taxation of different income sources such as labor or capital income and the taxation of couples. For these applications, we calculate income type-specific optimal tax rates for Germany using rich panel data from administrative tax records. We first estimate income-type specific elasticities with respect to the next-of-tax rate and show that responses to taxes differ substantially by income source and by gender. Second, we calculate social welfare weights implicit in the German personal income tax schedule which again differ between income sources and by gender. Using these estimates, we consider a tax simplification reform by calculating optimal schedular linear income tax rates. We find that optimal tax rates are significantly lower for labor income than for self-employment and capital income as well as for married women than men.
    Keywords: optimal taxation, income types, marginal social welfare weights, flat tax, administrative data
    JEL: H21 H24 H26 D60
    Date: 2018
  2. By: Cremer, Helmuth; Roeder, Kerstin
    Abstract: We study the taxation of couples when female wages do not re?ect their true productivity. We show that the expression for the marginal tax rates of the male spouses is the same as in a Mirrleesian world where wages re?ect true productivities. Marginal taxes for the female spouses are reduced because of a Pigouvian correction. Consequently, the wage discrimination pleads for a lower marginal tax on the female spouse. Furthermore, the distortion of a couples?tradeo¤ between male and female labor supply is the same as in a Mirrleesian world without a gender wage gap. It only depends on true productivities and not on wages. In other words, the tax system completely neutralizes the extra distortion introduced by the wedge between the female spouse?s wage and her true productivity.
    Keywords: Couples'income taxation; gender wage gap; optimal income taxation; household labor supply
    JEL: D10 H21 H31 J16 J22
    Date: 2018–09
  3. By: Karen Dynan (Peterson Institute for International Economics)
    Abstract: This paper considers the implications of a sustained period of low productivity growth for the design of tax systems. While the specific changes needed will vary by country and depend on how other features of the economic environment change, several broad conclusions emerge. First, lower productivity growth will exacerbate future fiscal shortfalls associated with aging populations; even assuming that interest rates are also lower, tax systems may need to collect more revenue per dollar of GDP to support their older populations. Second, with lower productivity growth likely to result in lower wages, labor force participation rates may drop further, bolstering the case for more tax incentives for working. Third, the potentially flatter lifetime income profiles associated with lower productivity growth, along with the possibility that fiscal strains will lead to cuts in government retirement benefits, may warrant increasing tax incentives for retirement saving. Finally, the lower real interest rates that would likely accompany sustained low productivity growth may reduce the future efficacy of monetary policy as a macroeconomic stabilization tool, suggesting that countries would be well-served by building more automatic stabilizers into their tax systems.
    Keywords: productivity, secular stagnation, taxes, fiscal sustainability
    JEL: E1 H2 H6
    Date: 2018–09
  4. By: Sokolovskyi, Dmytro
    Abstract: The article investigates the problem of adopting the tax incentives regime in certain industries. The general problem of tax benefits is their ineffectiveness, which often leads to results contrary to expected and also to losses in economy. So this paper aimed to define the reasons, factors and loss prevention of failures related to implementing the tax incentives regime. In order to analyze the subject area, we use the object and process modeling of it. Particularly, we use the optimization models and game-theory tools. We classified the types of tax incentives regimes in order to distinguish two targets for implementation of tax benefits: increase the government revenue and diversification the product line; and also three strategies of granting tax exemptions: overall, targeted, and individual tax incentives. We found that the strategy of granting overall tax exemptions potentially can lead to “free-rider problem”, and strategy of granting the targeted and individual ones can create conditions for arising of adverse selection mechanism. We defined the conditions leading to increase the tax revenues in process of adopting the tax incentives regime. Also the analysis of “principal-agent” model as Nash equilibrium allowed to find the conditions of arising the ineffective norm of interaction between government and investor, when the first satisfies the investor’s unjustified claim related to obtaining tax incentives. Obtained patterns, despite of their non-numerical character, can be useful in business decision-making, because the revealed ineffective norms and states define concrete threats, which should be considered by policymakers in the process of adopting the tax incentives regime. The future research can be related to extension of formalization of mechanisms of granting tax exemptions and of arising the inefficient states and norms of agents’ behavior; to development of mechanisms of prevention of inefficient states in the process of implementation of tax incentives regimes; to investigate their concrete evidence in the process of adopting the tax incentives regime in actual practice.
    Keywords: tax incentive regimes; tax behavior of government; economic behavior of investors; free rider problem; adverse selection, “principal – agent” model
    JEL: C02 G02 H25
    Date: 2018–09–23
  5. By: L. S. Di Mauro; A. Pluchino; A. E. Biondo
    Abstract: This paper presents a simple agent-based model of an economic system, populated by agents playing different games according to their different view about social cohesion and tax payment. After a first set of simulations, correctly replicating results of existing literature, a wider analysis is presented in order to study the effects of a dynamic-adaptation rule, in which citizens may possibly decide to modify their individual tax compliance according to individual criteria, such as, the strength of their ethical commitment, the satisfaction gained by consumption of the public good and the perceived opinion of neighbors. Results show the presence of thresholds levels in the composition of society - between taxpayers and evaders - which explain the extent of damages deriving from tax evasion.
    Date: 2018–09
  6. By: Thomas Wright; Gabriel Zucman
    Abstract: We estimate and attempt to explain the evolution of the taxes paid by U.S. multinationals on their foreign profits since 1966. In the oil sector, taxes paid to oil-producing States have been contained, allowing U.S. firms to earn high after-tax returns. Foreign taxes fell abruptly after the first Gulf War. In sectors other than oil, the effective foreign tax rate has fallen by half since the late 1990s. Almost half of this decline owes to the rise of profit shifting to tax havens. The low foreign taxes paid by U.S. multinationals can explain half of the U.S. cross-border return differential.
    JEL: H26 N52
    Date: 2018–09
  7. By: Fabian Kindermann (Universität Bonn); Lukas Mayr (University of Essex); Dominik Sachs (University of Munich)
    Abstract: The taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects. This leads to an increase in future labor income tax revenue on top of direct bequest tax revenue. We first show in a theoretical model that a simple back-of-the-envelope calculation, based on existing estimates for the reduction in earnings after wealth transfers, fails: the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because (i) heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting, and (ii) when bequest receipt is stochastic, even those who ex post end up not inheriting anything respond ex ante to the implied change in their distribution of net bequests. We quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life-cycle model that we calibrate to the German economy. Besides the joint distribution of income and inheritances, quasi-experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration. We find that for each Euro of bequest tax revenue the government mechanically generates, it obtains an additional 9 Cents of labor income tax revenue (in net present value) through higher labor supply of (non-) heirs.
    Keywords: bequests, taxation, life-cycle, Labor Supply, dynamic scoring
    JEL: C68 D91 H22 H31 J22
    Date: 2018–09
  8. By: Pilar Rey del Castillo; Jaime Villanueva-Garcia
    Abstract: The paper presents a study of the relationship between the tax morale and the individual payments of personal income tax using the statistical matching of opinion polls with a representative sample of the personal income tax returns in Spain. As an initial step, the method selected to execute the match -imputations using Bayesian Networks- is described. The relationship between a proxy variable of the individual tax morale and other variables in the declared income tax file is later analyzed using the matched files. A first result is that tax morale increases with the level of declared wages, salaries and capital gains, while it has no link with declared business income.
    Keywords: statistical matching, opinion polls, personal income tax, tax morale
    JEL: C10 C65 H24 H26
    Date: 2018

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