nep-pub New Economics Papers
on Public Finance
Issue of 2019‒09‒09
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Flat Tax: What Degree of Simplification Does It Imply? By Luigi Bernardi
  2. Taxation and the Superrich By Florian Scheuer; Joel Slemrod
  3. Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms By Youssef Benzarti; Alisa Tazhitdinova
  4. The optimal carbon tax with an endogenous chance of a tipping climate By Anthony Wiskich
  5. The informational value of environmental taxes By Ambec, Stefan; Coria, Jessica

  1. By: Luigi Bernardi (Università di Pavia)
    Abstract: According to its creators, the principal purpose of the original Flat Tax (FT: HALL AND RABUSHKA, 1985-1995) was to simplify the graduated PIT. This claim was broadly accepted, and the debate has since focused on other aspects of the proposal (single rate, redistribution effects, the tax treatment of corporations, and so on). The aim of this paper is therefore simply to analyse the simplification effects of the Flat Tax (FT). We shall be examining the criticisms made by the FT’s supporters in regard to the complications of a standard graduated PIT, the alleged simplifications ascribed to the introduction of the FT, and the robustness of such claims. We conclude that several reservations may be raised with regard to the claimed simplification that would result from the introduction of a FT. Such reservations, together with other weaknesses of the FT, may help explain why to date its diffusion has been limited to a small, specific group of countries (mainly former communist countries in Eastern Europe).
    Keywords: Personal Income Tax, Flat Tax, simplification
    JEL: H20 H24 H70
    Date: 2019–09
  2. By: Florian Scheuer; Joel Slemrod
    Abstract: This paper addresses the modern optimal tax progressivity literature, which clarifies the key role of the behavioral response to taxation and accounts for the incomes of the superrich being qualitatively different than others. Some may be “superstars,” for whom small differences in talent are magnified into much larger earnings differences, while others may work in winner-take-all markets, such that their effort to climb the ladder of success reduces the returns to others. We stress that pivotal tax-rate elasticities are not structural parameters, and will be smaller the broader and less plastic is the tax base and the more effective is the enforcement of tax evasion. For this reason, normative analysis of tax rates should be accompanied by attention to the tax base, with special attention to capital gains, which comprise a large fraction of the taxable income of the superrich.
    JEL: H2 H21 H26
    Date: 2019–08
  3. By: Youssef Benzarti; Alisa Tazhitdinova
    Abstract: This paper uses all Value Added Tax (VAT) changes across all EU Member States from 1988 to 2016 to estimate the effect of VATs on trade flows. We find small elasticities of trade flows with respect to VATs, in spite of some of the VAT changes being substantial. We estimate substantially smaller responses of trade flows to VATs compared to the responses of trade flows to tariffs estimated in the trade literature. This finding holds across different time periods, countries and types of reforms. Our results imply that VATs are unlikely to distort trade flows.
    JEL: F1 F14 H2 H25
    Date: 2019–08
  4. By: Anthony Wiskich
    Abstract: This paper describes an integrated assessment model with an unknown temperature threshold where severe and irreversible climate impacts, called a tipping point, occurs. The possibility of tipping leads to the following linked outcomes: a prolonged period of peak temperature; a rebound in emissions prior to and during peak temperature; and a fall in the optimal carbon tax as a ratio of output prior to and during peak temperature. Although tipping can occur in any period where temperature rises to a new maximum, the optimal carbon price can be calculated from future temperature outcomes conditional on no tipping. Learning that tipping has not occurred lowers the tax.
    Keywords: Climate change, tipping points, optimal policy, optimal taxes
    JEL: H23 O44 Q30 Q40 Q54 Q56 Q58
    Date: 2019–09
  5. By: Ambec, Stefan (Toulouse School of Economics, University of Toulouse Capitol (INRA) and University of Gothenburg); Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We propose informational spillovers as a new rationale for the use of multiple policy instruments to mitigate a single externality. We investigate the design of a pollution standard when the firms’ abatement costs are unknown and emissions are taxed. A firm might abate pollution beyond what is required by the standard by equalizing its marginal abatement costs to the tax rate, thereby revealing information about its abatement cost. We analyze how a regulator can take advantage of this information to design the standard. In a dynamic setting, the regulator relaxes the initial standard in order to induce more information revelation, which would allow her to set a standard closer to the first best in the second period. Updating standards, though, generates a ratchet effect since the low-cost firms might strategically hide their cost by abating no more than required by the standard. We provide conditions for the separating equilibrium to hold when firms act strategically. We illustrate our theoretical results with the case of NOx regulation in Sweden. We find evidence that the firms that are taxed experience more frequent standard updates.
    Keywords: pollution; externalities; asymmetric information; environmental regulation; tax; standards; multiple policies; ratchet effect; nitrogen oxides
    JEL: D04 D21 H23 L51 Q48 Q58
    Date: 2019–09

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