nep-pub New Economics Papers
on Public Finance
Issue of 2021‒10‒11
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How to Tax Different Incomes? By Laurence Jacquet; Etienne Lehmann
  2. Tax Competition with Two Tax Instruments - and Tax Evasion By Johannes Becker; John D. Wilson
  3. Exposure to Cigarette Taxes as a Teenager and the Persistence of Smoking into Adulthood By Andrew I. Friedson; Moyan Li; Katherine Meckel; Daniel I. Rees; Daniel W. Sacks
  4. Taxing Agricultural Income in the Global South: Revisiting Uganda’s National Debate By Stewart-Wilson, Graeme; Waiswa, Ronald

  1. By: Laurence Jacquet; Etienne Lehmann
    Abstract: We study the optimal tax system when taxpayers earn different kinds of income by supplying different inputs. Imperfect substitution between inputs allows for general equilibrium effects. We consider any type of cross-base responses to tax changes such as income-shifting. Formalizing the tax schedule as the sum of many one-dimensional schedules, we express optimal marginal tax rate on any kind of income in terms of sufficient statistics, including new ones for cross-base responses and general equilibrium effects. We also identify the conditions under which making the personal income tax marginally more schedular is socially desirable. The comprehensive and schedular (dual, in particular) income taxes being recurring proposals in the public debate, we derive sufficient conditions under which each form of tax is optimal. We stress how empirically restrictive these conditions are. Using a new algorithm on French tax return data, we characterize the optimal combination of a nonlinear tax schedule on personal income and a linear tax rate on capital income. We find that one should include, without any deduction, all income sources in the personal income base and subsidize the source of income which is more elastic. We find that cross-base responses have little effects on the personal nonlinear income tax schedule but increases by 5.9 to 6.9 percentage points the capital tax rate. General equilibrium effects also increases this tax rate by around 4.5 percentage points.
    Keywords: nonlinear income taxation, several income sources, cross-base responses, endogenous prices, dual income tax, comprehensive income tax
    JEL: H21 H22 H24
    Date: 2021
  2. By: Johannes Becker; John D. Wilson
    Abstract: We consider a world in which countries apply optimal taxes on mobile capital and savings (like in Bucovetsky and Wilson, 1991). Firms and savers may underreport income in order to avoid or evade taxation. We show that, even in the presence of underreporting, the equilibrium under tax competition may still be constrained-efficient (in the sense that there is no scope for welfare enhancing tax coordination). This is the case if the marginal social costs of underreporting savings and investment income are equal. The model demonstrates that, if source-based taxes on capital are inefficiently low, as is often assumed, taxes on savings must be inefficiently high. Constrained-efficient tax policy minimizes the social cost of underreporting. The results are robust to introducing taxes on profit or on labor income, if these types of income can be underreported as well. We conclude that commonly held assumptions on the need for coordination under tax competition need to be revised or qualified.
    Keywords: tax competition, social welfare, tax coordination
    JEL: H25 H32 H87
    Date: 2021
  3. By: Andrew I. Friedson; Moyan Li; Katherine Meckel; Daniel I. Rees; Daniel W. Sacks
    Abstract: Are teenage and adult smoking causally related? Recent anti-tobacco policy is predicated on the assumption that preventing teenagers from smoking will ensure that fewer adults smoke, but direct evidence in support of this assumption is scant. Using data from three nationally representative sources and cigarette taxes experienced as a teenager as an instrument, we document a strong, positive relationship between teenage and adult smoking: specifically, deterring 10 teenagers from smoking through raising cigarette taxes roughly translates into 5 or 6 fewer eventual adult smokers. We conclude that efforts to reduce teenage smoking can have important, long-lasting consequences on smoking participation and, presumably, health.
    JEL: H2 I1 I12
    Date: 2021–10
  4. By: Stewart-Wilson, Graeme; Waiswa, Ronald
    Abstract: The issue of agricultural taxation has almost completely disappeared from the scholarly and policy agendas in recent decades. And yet, agriculture is taxed very lightly despite contributing substantially to GDP across many Global South countries today. In some cases, light-touch taxation may be necessary to encourage investment in the sector and to protect small and subsistence farmers. However, anecdotal evidence from countries like Uganda suggests that there are a substantial number of high-income earners engaged in agricultural activities that are sheltered almost completely from any form of taxation. More effectively taxing these high-income earners could provide much-needed resources to finance public service provision in lower-income countries. The time is ripe, this paper argues, to revitalise discussions about how best to tax the agriculture sector.
    Keywords: Agriculture, Finance,
    Date: 2021

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