nep-pub New Economics Papers
on Public Finance
Issue of 2021‒09‒06
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Is tax competition necessarily a Race to the bottom? Optimal tax rate trajectories in the model of tax competition for different objective functions By Sokolovskyi, Dmytro
  2. The Revenue Administration Gap Analysis Program: An Analytical Framework for Personal Income Tax Gap Estimation By International Monetary Fund
  3. Unilateral Tax Policy in the Open Economy By Miriam Kohl; Philipp M. Richter

  1. By: Sokolovskyi, Dmytro
    Abstract: The work is devoted to research government tax behavior in tax competition conditions. In detail we study followed issues: is necessarily tax competition lead to Race to the bottom & is possible a simultaneous optimum of tax rate for both economies? This work is the continuation of research about, is it necessarily a Race to the bottom Prisoner’s dilemma. Available studies of tax competition generally focus on the analysis, which countries are inherent the trend to tax rate decrease, can this trend be considered a Race to the bottom, but if not, what are the reasons, that a Race to the bottom is not observed? The difference of the proposed work is that we do not consider additional, though important factors. The optimization model of tax competition for 2 economies evidence that even for one factor – the generalized tax burden, without the separation of income tax and “compensatory” taxes, such as taxes on consumption, labor, environment – a Race to the bottom is not necessarily. Under different conditions, the trend can be directed as to decrease as to increase of tax rate. So, it can be argued that tax competition not necessarily leads to Race to the bottom, as well as Race to the bottom is not necessarily modeled by Prisoner’s dilemma. The obtained results can help understand why some countries do not always follow the general trend to tax rate decrease. In addition, it explains not always the optimal tax behavior of some countries those in this way cause a change in the trend in competitors.
    Keywords: tax competition; race to the bottom; prisoner’s dilemma; tax rate trajectory; modelling
    JEL: C6 E62 H30
    Date: 2021–08–21
  2. By: International Monetary Fund
    Abstract: It is generally difficult to measure revenue not collected due to noncompliance, but a growing number of countries now regularly produce and publish estimated revenue losses. Good tax gap analysis enables the detection of changes in taxpayer behavior by consistent estimates over time. This Technical Note sets out the theoretical concepts for personal income tax (PIT) gap estimation, the different measurement approaches available, and their implications for the scope and presentation of statistics. The note also focuses on the practical steps for measuring the PIT gap by establishing a random audit program to collect data, and how to scale findings from the sample to the population.
    Keywords: Tax Administration; Tax Compliance; Personal Income Tax; Tax Gap; Tax Avoidance; Tax Evasion; Random Audit Program; Shadow Economy; Non-Observed Economy; PIT gap; Personal Income Tax gap estimation; publication order; gap estimate; taxpayer registry data; Auditing; Revenue Administration Gap Analysis Program (RA-GAP)
    Date: 2021–08–27
  3. By: Miriam Kohl (Johannes Gutenberg University Mainz); Philipp M. Richter (TU Dresden)
    Abstract: This paper examines the effects of a unilateral reform of the redistribution policy in an economy open to international trade. We set up a general equilibrium trade model with heterogeneous agents allowing for country asymmetries. We show that under international trade compared to autarky, a unilateral tax increase leads to a less pronounced decline in aggregate real income in the reforming country, while income inequality is reduced to a larger extent for sufficiently small initial tax rates. We highlight as a key mechanism a tax-induced reduction in the market size of the reforming country relative to its trading partner, resulting in a firm selection effect towards exporting. From the perspective of a non-reforming trading partner, the unilateral redistribution policy reform resembles a unilateral increase in trade costs leading to a deterioration of terms-of-trade and a decline in both aggregate real income and inequality.
    Keywords: Income inequality, Redistribution, International trade, Heterogeneous firms
    JEL: D31 F12 F16 H24
    Date: 2021–08–26

This nep-pub issue is ©2021 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.