nep-pub New Economics Papers
on Public Finance
Issue of 2021‒06‒14
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk By Krueger, Dirk; Ludwig, Alexander; Villalvazo, Sergio
  2. Economic Lessons for Tax Policy Advisers By Gemmell, Norman
  3. Taxation behind the veil of ignorance By Biung-Ghi Ju; Juan D. Moreno-Ternero
  4. Monopsony power, income taxation and welfare By Albert Jan Hummel
  5. Tax Evasion, Efficiency, and Bunching in the Presence of Enforcement Notches By Daniel M. Hungerman
  6. Revisiting the Extent to Which Payroll Taxes Are Passed Through to Employees: Working Paper 2021-06 By Dorian Carloni
  7. How to Manage Value-Added Tax Refunds By Mario Pessoa; Andrew Okello; Artur Swistak; Virginia Alonso-Albarran; Muyangwa Muyangwa; Vincent de Paul Koukpaizan
  8. Understanding Federal Estate and Gift Taxes By Congressional Budget Office
  9. How to Design a Regional Tax Treaty and Tax Treaty Policy Framework in a Developing Country By Kiyoshi Nakayama
  10. Options for raising tax revenue in Ireland By Roantree, Barra; Kakoulidou, Theoni

  1. By: Krueger, Dirk; Ludwig, Alexander; Villalvazo, Sergio
    Abstract: We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium effects of private precautionary saving on factor prices and taxes capital unless the weight on future generations in the social welfare function is sufficiently high. For logarithmic utility a complete analytical solution of the Ramsey problem exhibits an optimal aggregate saving rate that is independent of income risk, whereas the optimal time-invariant tax on capital implementing this saving rate is increasing in income risk. The optimal saving rate is constant along the transition and its sign depends on the magnitude of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently induces a Pareto-improving transition even if the initial equilibrium capital stock is below the golden rule.
    Keywords: Idiosyncratic Risk,Taxation of Capital,Overlapping Generations,Precautionary Saving,Pecuniary Externalities
    JEL: H21 H31 E21
    Date: 2021
  2. By: Gemmell, Norman
    Abstract: This paper aims to provide tax policy advisers with some lessons from the general economics and public economics literatures relevant for the design of ‘good tax policy’ in relatively developed OECD economies such as New Zealand. It is aimed at those with limited or no background in economics (in general or in the economics of taxation in particular) who are tasked with understanding, devising or advising on, tax policy in practice. In addition to focusing on general lessons from the economics and tax theory literatures, it highlights some specific lessons for particular taxes, including personal income and indirect taxes. The paper is not intended as a guide for the design of specific tax policies, but rather provides some first-principles background, supported by examples, of how to think about setting tax policy in economically sensible ways (and avoid common pitfalls). More detailed background literature is also sign-posted.
    Keywords: Tax policy, Economics, Tax policy advisory,
    Date: 2021
  3. By: Biung-Ghi Ju (Department of Economics, Seoul National University); Juan D. Moreno-Ternero (Department of Economics, Universidad Pablo de Olavide;)
    Abstract: We explore the design of impartial tax schemes in a simple setup where agents’ incomes are completely determined by their inborn talents. Building on Harsanyi’s veil-of-ignorance approach, we conceptualize an impartial observer who chooses a tax scheme without know- ing her own preferences and the distribution of talents, and whose vNM preferences behind the veil obey Harsanyi’s principle of acceptance and are independent, in terms of utility-scale, of the distribution of talents. Our results in the resulting framework provide three main messages: (i) the veil of ignorance implies anonymity of tax schemes; (ii) the veil of ignorance generically rejects utilitarian tax schemes; (iii) the veil of ignorance endorses the (Rawlsian) leveling tax scheme.
    Keywords: veil of ignorance, impartiality, anonymity, leveling tax, utilitarianism
    JEL: D63 D71 H24
    Date: 2021
  4. By: Albert Jan Hummel (University of Amsterdam)
    Abstract: This paper studies the implications of monopsony power for optimal income taxation and welfare. Firms observe workers' abilities while the government does not and monopsony power determines what share of the labor market surplus is translated into profits. Monopsony power increases the tax incidence that falls on firms. This makes labor income taxes less (more) effective in redistributing labor income (profits). The optimal tax schedule is less progressive. Monopsony power alleviates the equity-efficiency trade-off that occurs because the government does not observe ability, but at the expense of exacerbating capital income inequality. I illustrate these findings for the US economy.
    Keywords: monopsony, optimal taxation, tax incidence
    JEL: H21 H22 J42 J48
    Date: 2021–06–05
  5. By: Daniel M. Hungerman
    Abstract: A recent literature has studied bunching at notches in tax systems; but work on the implications of bunching for welfare has been limited. We consider a setting where there are discrete changes in the enforcement of tax compliance at certain levels of reported income, creating notches that can lead to bunching. We find that greater levels of bunching can be associated with greater tax efficiency. A simulation exercise demonstrates that notches with greater bunching can be associated with higher welfare than notches with less bunching, and that a tax system with bunching at a notch can generate higher overall social welfare than a revenue-equivalent no-evasion linear tax.
    JEL: H21 H26
    Date: 2021–05
  6. By: Dorian Carloni
    Abstract: Empirical evidence on the incidence of payroll tax changes in the United States is limited and does not generally apply to changes in U.S. federal payroll taxes. Economic models can help inform the effects of such changes on households’ well-being—that is, their welfare effects. In this paper, I rely on partial equilibrium and general equilibrium models to quantify the welfare effects of payroll tax changes. First, I develop a partial equilibrium model of tax incidence and evaluate the short-run incidence of payroll tax changes on employees in the
    JEL: H00 H22 H24
    Date: 2021–06–02
  7. By: Mario Pessoa; Andrew Okello; Artur Swistak; Virginia Alonso-Albarran; Muyangwa Muyangwa; Vincent de Paul Koukpaizan
    Abstract: The value-added tax (VAT) has the potential to generate significant government revenue. Despite its intrinsic self-enforcement capacity, many tax administrations find it challenging to refund excess input credits, which is critical to a well-functioning VAT system. Improperly functioning VAT refund practices can have profound implications for fiscal policy and management, including inaccurate deficit measurement, spending overruns, poor budget credibility, impaired treasury operations, and arrears accumulation.This note addresses the following issues: (1) What are VAT refunds and why should they be managed properly? (2) What practices should be put in place (in tax policy, tax administration, budget and treasury management, debt, and fiscal statistics) to help manage key aspects of VAT refunds? For a refund mechanism to be credible, the tax administration must ensure that it is equipped with the strategies, processes, and abilities needed to identify VAT refund fraud. It must also be prepared to act quickly to combat such fraud/schemes.
    Keywords: value-added tax; refunds; VAT; management framework; VAT refund; Georgia revenue service; VAT system; Tax refunds; Tax administration core functions; Credit; Income; Global; Africa;Currencies
    Date: 2021–05–10
  8. By: Congressional Budget Office
    Abstract: In this report, CBO describes estate and gift taxes, the people who pay them, the types of assets that make up taxable estates, and the model the agency uses to project estate and gift tax revenues in its baseline. In 2020, revenues from federal estate and gift taxes totaled $17.6 billion (equal to 0.1 percent of gross domestic product, or GDP). In recent years, changes to estate and gift tax laws have reduced the revenues raised by the taxes and the number of taxpayers who incur that liability.
    JEL: H20 H24
    Date: 2021–06–09
  9. By: Kiyoshi Nakayama
    Abstract: A well-designed regional tax treaty to which developing countries are signatories will include provisions securing minimum withholding taxes on investment income and technical service fees, a taxing right in respect of capital gains from indirect offshore transfers, and guarding against-treaty shopping. A tax treaty policy framework—national or regional—that specifies the main policy outcomes to be achieved before negotiations commence would enable developing countries with more limited expertise and lower capacity for tax treaty negotiations to avoid concluding problematic tax treaties. This note provides guidance for members of regional economic communities in the developing world on what should and should not be included in a regional tax treaty and how to design on a common tax treaty policy framework for use in negotiations of bilateral tax treaties with nonmembers.
    Keywords: value-added tax; corporate tax; regional tax; regional tax policy; regional tax treaty; developing countries; tax treaty; group treaty negotiations; tax treaty position; treaty negotiations; treaty shopping; Double taxation; Withholding tax; Payroll tax; Corporate income tax; Dividend tax; Caribbean; West Africa
    Date: 2021–05–04
  10. By: Roantree, Barra; Kakoulidou, Theoni
    Date: 2021–05

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