nep-pub New Economics Papers
on Public Finance
Issue of 2018‒11‒12
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A net welfare benefit approach to optimal taxation By Cristian F. Sepulveda
  2. Termination Fees and Contract Design in Public-Private Partnerships By Marco Buso; Cesare Dosi; Michele Moretto
  3. Valuation in the Public and Private Sectors: Tax, Risk, Debt Capacity, and the Cost of Capital By Brealey, Richard; Cooper, Ian; Habib, Michel Antoine
  4. Taxation trends in the European Union: 2018 edition By European Commission
  5. Optimal policy design for the sugar tax By Kelly Geyskens; Alexander Grigoriev; Niels Holtrop; Anastasia Nedelko
  6. Social Networks and Tax Avoidance: Evidence from a Well-Defined Norwegian Tax Shelter By Annette Alstadsæter; Wojciech Kopczuk; Kjetil Telle

  1. By: Cristian F. Sepulveda (Farmingdale State College, SUNY)
    Abstract: This paper challenges the widespread notion that the labor income tax is an inherently distortionary tax instrument. Optimal tax theory considers the lump-sum tax as the only efficient or non-distortionary tax instrument. This conclusion depends on two (often implicit) assumptions: one is that the economy is operating at the optimal welfare maximizing solution, where the marginal cost of tax revenue is equal to its marginal benefit; and the other that public expenditure has no effect on taxpayers’ budget constraints. However, for a government program to be worthwhile, total benefit must be greater than total cost, and it is easy to find examples where budget constraints are affected by public expenditure. This paper shows that, when the two assumptions are relaxed, the combined use of labor income and lump-sum taxes may allow a representative taxpayer to reach greater levels of welfare than the use of a lump-sum tax alone.
    Date: 2018–10
  2. By: Marco Buso (University of Padova); Cesare Dosi (University of Padova); Michele Moretto (University of Padova)
    Abstract: We study the effects of granting an exit option that enables the private party to early terminate a PPP project if it turns out to be loss-making. In a continuous-time setting with hidden information about stochastic operating proï¬ ts, we show that a revenue-maximizing government can optimally trade-off direct subsidies for capital investment against the right of opting out the PPP. In particular, the exit option, acting as a risk-sharing device, can soften agency problems and increase the value-for-money of public spending, even while taking into account the budgetary resources needed to resume the project in the event of early termination by the contractor.
    Keywords: Public projects, Public-private partnerships, Adverse selection, Real options, Investment timing, Termination fees
    JEL: D81 D82 D86 H54
    Date: 2018–10
  3. By: Brealey, Richard; Cooper, Ian; Habib, Michel Antoine
    Abstract: The public and private sector costs of capital differ in the presence of taxes, because taxes are a cost to the private but not the public sector. We use a quasi-arbitrage approach to show how to include taxes in a comparison of capital costs. We find that taxes induce distortions that generate a systematic private sector preference for assets with rapid tax depreciation, high debt capacity, and low risk. We examine the implications of that preference for privatization, government outsourcing, and regulation. Our approach facilitates the analysis of transactions such as pure risk transfers, otherwise difficult using standard discounting methods.
    Keywords: cost of capital; debt capacity; private sector; Public sector; risk; tax; Valuation
    JEL: G18
    Date: 2018–10
  4. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA2010 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2018–07
  5. By: Kelly Geyskens; Alexander Grigoriev; Niels Holtrop; Anastasia Nedelko
    Abstract: Healthy nutrition promotions and regulations have long been regarded as a tool for increasing social welfare. One of the avenues taken in the past decade is sugar consumption regulation by introducing a sugar tax. Such a tax increases the price of extensive sugar containment in products such as soft drinks. In this article we consider a typical problem of optimal regulatory policy design, where the task is to determine the sugar tax rate maximizing the social welfare. We model the problem as a sequential game represented by the three-level mathematical program. On the upper level, the government decides upon the tax rate. On the middle level, producers decide on the product pricing. On the lower level, consumers decide upon their preferences towards the products. While the general problem is computationally intractable, the problem with a few product types is polynomially solvable, even for an arbitrary number of heterogeneous consumers. This paper presents a simple, intuitive and easily implementable framework for computing optimal sugar tax in a market with a few products. This resembles the reality as the soft drinks, for instance, are typically categorized in either regular or no-sugar drinks, e.g. Coca-Cola and Coca-Cola Zero. We illustrate the algorithm using an example based on the real data and draw conclusions for a specific local market.
    Date: 2018–10
  6. By: Annette Alstadsæter; Wojciech Kopczuk; Kjetil Telle
    Abstract: In 2005, over 8% of Norwegian shareholders transferred their shares to new (legal) tax shelters intended to defer taxation of capital gains and dividends that would otherwise be taxable in the aftermath of 2006 reform. Using detailed administrative data we identify family networks and describe how take up of tax avoidance progresses within a network. A feature of the reform was that the ability to set up a tax shelter changed discontinuously with individual shareholding of a firm and we use this fact to estimate the causal effect of availability of tax avoidance for a taxpayer on tax avoidance by others in the network. We find that take up in a social network increases the likelihood that others will take up. This suggests that taxpayers affect each other's decisions about tax avoidance, highlighting the importance of accounting for social interactions in understanding enforcement and tax avoidance behavior, and providing a concrete example of “optimization frictions” in the context of behavioral responses to taxation.
    JEL: D22 D23 H25 H26 H32
    Date: 2018–10

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