nep-pub New Economics Papers
on Public Finance
Issue of 2020‒08‒24
nine papers chosen by

  1. Pareto-improving tax reforms and the Earned Income Tax Credit By Felix Bierbrauer; Pierre Boyer; Emanuel Hansen
  2. Bunching and Rank-Dependent Optimal Income Taxation By Laurent Simula; Alain Trannoy
  3. Excise Taxation for Domestic Resource Mobilization By Sijbren Cnossen
  4. Working Paper 333 - Corruption and Tax Morale in Africa By Amadou Boly; Maty Konte; Abebe Shimeles
  5. Competition in Taxes and IPR By Ronald B. Davies; Yutao Han; Kate Hynes; Yong Wang
  6. Pricing group membership By Siddhartha Bandyopadhyay; Antonio Cabrales
  7. Lindahl vs. Lindahl: Optimal siting and sizing of a noxious facility By Ferraz, Eduardo; Mantilla, Cesar
  8. Taxing hidden wealth: the consequences of U.S. enforcement initiatives on evasive foreign accounts By Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel
  9. Social Security Reforms and the Changing Retirement Behavior in Germany By Axel H. Börsch-Supan; Johannes Rausch; Nicolas Goll

  1. By: Felix Bierbrauer (Center for Macroeconomic Research, University of Cologne); Pierre Boyer (CREST, ́Ecole Polytechnique); Emanuel Hansen (Center for Macroeconomic Research, University of Cologne)
    Abstract: This paper provides necessary and sufficient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as sufficient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of the Earned Income Tax Credit (EITC) in the US. We find that the EITC can be viewed as a response to an inefficiency in the tax and transfer system prevailing at the time. This adds a newperspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.
    Keywords: Tax reforms, Non-linear income taxation, Optimal taxation, Earned Income Tax Credits, Pareto Efficiency
    JEL: C72 D72 D82 H21
    Date: 2020–06
  2. By: Laurent Simula; Alain Trannoy
    Abstract: We consider optimal non-linear income tax problems when the social welfare function only depends on ranks as in Yaari (1987) and weights agree with the Lorenz quasi-ordering. Gini, S-Gini, and a class putting more emphasis on inequality in the upper part of the distribution belong to this set. Adopting a first-order approach, we establish marginal tax formula assuming a continuous population framework, and derive conditions on the primitives of the model for which the socially optimal allocation is either fully separating or involves some bunching. For all log-concave survival functions, bunching is precluded for the maximin, Gini, and ”illfare-ranked single-series Ginis”. We then turn to a discrete population setting, and provide ”ABC” formulas for optimal marginal tax rates, which are related to those for a continuum of types but remain essentially distinct.
    Keywords: rank dependence, Gini, optimal income taxation, bunching, log-concavity
    JEL: D63 D82 H21
    Date: 2020
  3. By: Sijbren Cnossen
    Abstract: Most governments will have to raise additional resources to deal with the aftermath of the corona crisis. This paper argues that excise duties on drinking, smoking, gambling, sugar-sweetened beverages, plastics, fossil fuels, motoring, telecoms and platforms are the preferred instruments. In nearly all cases, excise duties improve the efficient allocation of resources, while reliance on them is consistent with an equitable tax system. Also, excise duties can be administered more easily than income and value added taxes. Current excise duties are way below efficient levels. It should be possible to triple their yield, especially in developing countries.
    Keywords: excise duties, resource mobilization, smoking, drinking, gambling, sugar-sweetened beverages, plastics, fossil fuels, motoring, telecoms, platforms, luxury consumption
    JEL: H21 H23 H25
    Date: 2020
  4. By: Amadou Boly (Research Department, African Development Bank); Maty Konte (United Nations University (UNU-MERIT)); Abebe Shimeles (African Economic Research Consortium)
    Abstract: This paper analyzes the effect of the quality of governance (proxied by perceived corruption) on attitudes toward paying taxes. Using the Afrobarometer surveys from 36 African countries, over the period 2011-2015, we find that a perception of low corruption at different levels of the executive branch (president's office, government officials, or tax authorities) has a significant and positive impact on tax morale. To account for possible reverse causality between a citizen's perception of governance quality and attitude toward tax payment, we also propose an instrumental variables (IV) approach, using the ethnicity of the country's leader as an instrument for perceived level of corruption, the assumption being that individuals from the same ethnic group tend to have a favorable perception of concurrent governance. The IV results confirm that an individual's positive perception of governance has a positive impact on one's willingness to pay taxes.
    Keywords: corruption, taxation, governance, Africa JEL Classification: D73, H71, O55
    Date: 2020–05–25
  5. By: Ronald B. Davies; Yutao Han; Kate Hynes; Yong Wang
    Abstract: We examine competition for foreign direct investment when governments compete in tax incentives along with intellectual property rights (IRPs) protection. Higher IPRs result in a lower probability of the multinational enterprise (MNE) being imitated and thus higher expected profits and tax revenues, all else equal. We show that, from the perspective of competing hosts, equilibrium IPRs are too high while taxes are too low. Coordination between jurisdictions can therefore lower the multinational's expected payoff, providing a rationale for why during recent trade negotiations FDI home countries complain about low IPRs in some locations while not pushing for them to be centrally determined.
    Keywords: Tax competition; FDI; IPRs; Imitation
    JEL: F23 H25
    Date: 2020–06
  6. By: Siddhartha Bandyopadhyay (University of Birmingham); Antonio Cabrales (University College London)
    Abstract: We consider a model where agents differ in their 'types' which determines their voluntary contribution towards a public good. We analyze what the equilibrium composition of groups are under centralized and centralized choice. We show that there exists a top-down sorting equilibrium i.e. an equilibrium where there exists a set of prices which leads to groups that can be ordered by level of types, with the first k types in the group with the highest price and so on. This exists both under decentralized and centralized choosing. We also analyze the model with endogenous group size and examine under what conditions is top-down sorting socially effcient. We illustrate when integration (i.e. mixing types so that each group's average type if the same) is socially better than top-down sorting. Finally, we show that top down sorting is efficient even when groups compete among themselves.
    Keywords: Top down sorting, Group formation, Public good, Segregation, Integration.
    JEL: D02 D64 D71 H41
    Date: 2020–08
  7. By: Ferraz, Eduardo; Mantilla, Cesar
    Abstract: The provision of projects generating net benefits for several communities except for the host community poses two problems: where to locate the unpleasant facility, and how large this facility should be. We propose a mechanism that combines some market-like properties with a modified second-price auction. We elicit prices per unit as a host and as a contributor to the facility, the desired quantity (i.e., facility size), and an auction's bid defining the hosting community. Regardless of whom is selected as the host, any equilibrium outcome of this mechanism is a Lindahl allocation. If, in addition, every community truthfully reveals its gain from becoming the host (with respect to being a contributor), the selected Lindahl allocation is globally optimal.
    Date: 2020–07–17
  8. By: Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel
    Abstract: In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of enforcement efforts on taxpayers’ reporting of offshore accounts and income. We find that enforcement caused approximately 50,000 individuals to disclose offshore accounts with a combined value of about $100 billion. Most disclosures happened outside offshore voluntary disclosure programs, by individuals who never admitted prior noncompliance. Disclosed accounts were concentrated in countries often characterized as tax havens. Enforcement-driven disclosures increased annual reported capital income by $2-$4 billion, corresponding to $0.6-$1.2 billion in additional tax revenue.
    JEL: H24 H26 K34
    Date: 2020–08–01
  9. By: Axel H. Börsch-Supan; Johannes Rausch; Nicolas Goll
    Abstract: As much like other industrialized countries, in recent decades the employment rate in Germany for those aged 55 to 69 had been declining first to considerably rise again afterwards. This paper investigates the role of structural policy changes, in particular reforms of the pension system, since 1980 in explaining this trend reversal. We summarize the institutional changes and pension reforms that may account for the trend reversal, and calculate an “implicit tax on working longer”. We find that for both men and women the increase in the employment rate coincides with a reduction in the early retirement incentive. The reduction of incentives mainly stems from the introduction of actuarial deductions for early retirement and from the abolishment of specific early retirement pathways.
    JEL: H55 J26
    Date: 2020–07

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