nep-pub New Economics Papers
on Public Finance
Issue of 2020‒06‒08
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Entrepreneurship, Agency Frictions and Redistributive Capital Taxation By Corina Boar; Matthew Knowles
  2. Does Labor Income React more to Income Tax or Means-Tested Benefit Reforms? By Michaël Sicsic
  3. On tax competition, international migration,and occupational choice By Yutao Han; Patrice Pieretti
  4. Entry, exit, and instrument choice in environmental regulation By Nikula Harri
  5. Is Environmental Tax Harmonization Desirable in Global Value Chains? By Haitao Cheng; Hayato Kato; Ayako Obashi
  6. Optimal Regulation of E-cigarettes: Theory and Evidence By Hunt Allcott; Charlie Rafkin
  7. Who knows whom we pay taxes to? Tax visibility in a decentralized country: The case of Spain By Julio López-Laborda; Fernando Rodrigo; Eduardo Sanz-Arcega

  1. By: Corina Boar (New York University); Matthew Knowles (University of St Andrews)
    Abstract: We study optimal capital taxation in a model with financial frictions, where the distribution of wealth across heterogeneous entrepreneurs affects how efficiently capital is used in the economy. The government sets linear taxes on wealth, consumption, capital and labor income to maximize the steady state welfare of workers, who own no wealth. In our setting, capital income taxes are particularly costly, because these taxes lead to a more inefficient allocation of capital and, ultimately, lower aggregate total factor productivity. We model financial frictions as arising endogenously as a result of an asymmetric information problem and find that the tightness of financial frictions is affected by tax rates. In our setting, optimal tax rates can be written as simple closed-form functions of pre-tax prices and parameters. We find that the optimal total tax burden on entrepreneurs should be zero, even though the government cares only about workers’ welfare.
    Keywords: Optimal Taxation, Capital Taxation, Entrepreneurship, Financial Frictions
    JEL: E44 H21 D31 D82
    Date: 2020–05–27
  2. By: Michaël Sicsic
    Date: 2020
  3. By: Yutao Han (University of International Business and Economics, Beijing, CH); Patrice Pieretti (Department of Economics and Management, Université du Luxembourg)
    Abstract: The aim of the paper is to analyze tax competition with inter- nationally mobile individuals who make occupational choices. Two types of migration are distinguished, namely entrepreneur and worker migration. When the competing jurisdictions put a sufficiently high valuation on public good expenditures, entrepreneurship migration increases joint welfare relative to autarky. However, in case of labor migration, tax competition can decrease joint welfare independently of how much the jurisdictions value public expenditures.
    Keywords: migration, tax competition, occupational choice, social Welfare
    JEL: F22 H24 H73 J24 J61
    Date: 2020
  4. By: Nikula Harri (Faculty of Management and Business, Tampere University)
    Abstract: We study market-based regulation where a government tries to avoid excessive firm closures by providing reliefs from emission fees for incumbent firms. Regulation is asymmetric as only incumbents, not new entrants are subsidized by the payment reliefs. We ask whether this feature affects the choice between environmental taxes and tradable permits under uncertainty. We find a trade-off between tax-beneficial inefficiency effect and permit-beneficial volume effect. The latter effect arises as the free quotas makes the number of aggregate permits and the aggregate emissions to fluctuate in the quantity implementation. We show that the subsidization of incumbent firms does not unambiguously favor one of the instruments but the advantage depends on policy- and industry-specific factors.
    Keywords: Emission taxation, firm closure, environmental subsidies, tradable emission permits, uncertainty
    JEL: D62 D81 H23 Q58
    Date: 2020–05
  5. By: Haitao Cheng (Graduate School of Economics, Hitotsubashi University,); Hayato Kato (Graduate School of Economics, Osaka University); Ayako Obashi (School of International Politics, Economics and Communication, Aoyama Gakuin University)
    Abstract: The spatialunbundlingofpartsproductionandassemblycurrentlycharacterizes globalization, leadingtotheworldwidedispersionofpollution.Weconsidersociallyop- timal (cooperative)environmentaltaxesinatwo-countrymodelofglobalvaluechains in whichthelocationofbothpartsandassemblycandi er.Whenunbundlingcosts are sohighthatpartsandassemblymustcolocateinthepre-globalizedworld,pollu- tion isspatiallyconcentrated,andharmonizingenvironmentaltaxesmaximizesglobal welfare.Incontrast,withlowunbundlingcoststriggeringthedispersionofpartsand thuspollutionthroughouttheworldastoday,harmonizationfailstomaximizeglobal welfare.Similarresultsholdwhenthetwocountriesnon-cooperativelychoosetheir environmentaltaxes.
    Keywords: Environmentalpolicy;Fragmentation;Emissiontaxcompetition;International coordination;Tradeinpartsandcomponents
    JEL: F18 F23 Q56 Q58
    Date: 2020–05
  6. By: Hunt Allcott; Charlie Rafkin
    Abstract: We model optimal e-cigarette regulation and estimate key sufficient statistics. Using tax changes and scanner data, we estimate relatively elastic demand and limited substitution between e-cigarettes and combustible cigarettes. In sample surveys, historical smoking declines for high- and low-vaping demographics were unchanged after e-cigarettes were introduced; this demographic shift-share identification also suggests limited substitution. We field a new survey of experts, who report that vaping is almost as harmful as smoking cigarettes. In our model, these results imply that current e-cigarette taxes are far below the social optimum, but Monte Carlo simulations highlight substantial uncertainty.
    JEL: D12 D18 D61 H21 H23 I12 I18
    Date: 2020–04
  7. By: Julio López-Laborda; Fernando Rodrigo; Eduardo Sanz-Arcega
    Abstract: A necessary condition for the efficiency gains that the theory of fiscal federalism assigns to decentralization to be effective is that citizens know the costs and benefits of public action. However, surveys show that most Spaniards are unable to correctly identify the taxes received by the various levels of government. Exploiting the 2015 wave of the Spanish Institute for Fiscal Studies’ Fiscal Barometer, this paper empirically determines the profile of citizens who are best able to identify the allocation of taxes among levels of government. On the basis of these characteristics, the paper proposes a number of recommendations to improve citizens' fiscal visibility: a better definition and simplification of the allocation of expenditure powers between levels of government, strengthening of regional tax powers, highlighting the link between taxes and expenditure, and improvement of the population's educational level.
    Date: 2020–05

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