nep-pub New Economics Papers
on Public Finance
Issue of 2022‒05‒16
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Global Corporate Income Tax Competition, Knowledge Spillover, and Growth By Maebayashi, Noritaka; Morimoto, Keiichi
  2. Social Versus Individual Work Preferences: Implications for Optimal Income Taxation By Mr. David Coady; Zhiyong An
  3. A p Theory of Government Debt and Taxes By Wei Jiang; Thomas J. Sargent; Neng Wang; Jinqiang Yang
  4. The (Non-)Neutrality of Value-Added Taxation By Georg Schneider; Frank Stähler; Georg U. Thunecke
  5. Domestic Violence and Income: Quasi-Experimental Evidence from the Earned Income Tax Credit By Resul Cesur; Núria Rodriguez-Planas; Jennifer Roff; David Simon
  6. Fiscal Policies and their Impact on Income Distribution in India By Sridhar Kundu; Maynor Cabrera

  1. By: Maebayashi, Noritaka; Morimoto, Keiichi
    Abstract: In a two-country model of endogenous growth with international knowledge spillover, corporate income tax competition reproduces the second-best allocation attained by tax harmonization, despite complex externalities. This stems from the positive spillover effect across the border and free trading by Ricardian households in the global financial market. However, such a neutrality result does not hold in the extended model, which includes non-Ricardian households. The equilibrium tax rate under the corporate income tax competition can be excessively high or low, depending on the elasticity of the spillover effect to the share of the firms’ locations.
    Keywords: corporate income tax; tax competition; spillover; welfare; economic growth; non- Ricardian household
    JEL: E62 F23 F42 H21 H54
    Date: 2022–04–08
  2. By: Mr. David Coady; Zhiyong An
    Abstract: The benchmark optimal income taxation model of Mirrlees (1971) finds that the optimal marginal income tax rate (MIT) is always non-negative. A key model assumption is the coincidence between social and individual work preferences. This paper extends the model to allow for differences in social and individual work preferences. The theoretical and simulation analyses show that under this model, when the government places a higher social weight on work than individuals, the optimal MIT schedule is shifted downwards, introducing the possibility for optimal wage subsidies at the bottom of the income distribution. This implies lower revenues, demogrants, and overall progressivity.
    Keywords: Preference Differences; Optimal Income Taxation; Wage Subsidies; Progressivity; taxation model; preference difference; model of Mirrlees; income taxation; MIT schedule; Marginal effective tax rate; Income tax systems; Income; Labor supply; Employment subsidies
    Date: 2022–03–25
  3. By: Wei Jiang; Thomas J. Sargent; Neng Wang; Jinqiang Yang
    Abstract: An optimal tax and government borrowing plan in a setting with tax distortions (Barro, 1979) locally pin down the marginal cost of servicing government debt, called marginal p. An option to default determines the government’s debt capacity and its optimal state-contingent risk management policies make its debt risk-free. Optimal debt-GDP ratio dynamics are driven not only by three widely discussed forces, 1.) a primary deficit, 2.) interest payments, and 3.) GDP growth, but also by 4.) hedging costs. Hedging fundamentally alters debt transition dynamics and equilibrium debt-capacity, which are at the center of the recent 'r-g' and debt sustainability discussions. We calibrate our model and make comparative dynamic quantitative statements about the debt-GDP ratio transition dynamics, equilibrium debt capacity, and how long it will take the US to attain debt capacity.
    JEL: E44 E62 G12 H21 H63
    Date: 2022–04
  4. By: Georg Schneider; Frank Stähler; Georg U. Thunecke
    Abstract: This paper employs a structural gravity model and novel value-added tax (VAT) regime data to investigate the impact of VAT rate changes on imports and domestic production of final goods. We demonstrate that the VAT is both non-neutral and discriminatory. A one percentage point VAT increase reduces aggregate imports and internal trade by 3.05% and implies a 5.4 to 7.9% reduction of foreign imports relative to internal trade. Based on these results we conduct a counterfactual equilibrium analysis and illustrate that VAT rate changes imply substantial welfare effects for an average country in the European Union.
    Keywords: structural gravity, value-added taxation, neutrality, discrimination
    JEL: F10 F14 H22
    Date: 2022
  5. By: Resul Cesur; Núria Rodriguez-Planas; Jennifer Roff; David Simon
    Abstract: Using Difference-in-Differences models, we estimate the impact of an exogenous increase in income on the incidence and intensity of intimate partner violence (IPV). Using National Crime Victimization Survey data from 1992 to 2000, we exploit time and family-size variation in the Earned Income Tax Credit (EITC). The OBRA-93 expansion caused statistically significant decreases in both reports of any physical or sexual assault and counts of physical or sexual assaults per 100 women surveyed with the effects being strongest for those groups more likely to both experience IPV and be eligible for EITC: unmarried women and black women. If increased income (rather than changes in employment) is the only channel by which the EITC decreases domestic violence, an additional $1,000 of after-tax income decreases the incidence of physical and sexual violence of unmarried low-educated women by 9.73% and the intensity of physical and sexual violence by 21%. We explore potential mechanisms behind these findings. After ruling out a decrease in time exposure to a partner (due to more time spent at work than at home) or increases in cash on hand with tax returns, we find evidence in support of EITC allowing for changes in living conditions during the summer.
    JEL: H2 I3 J08
    Date: 2022–04
  6. By: Sridhar Kundu; Maynor Cabrera
    Abstract: Fiscal policies play a key role in reshaping income distribution in India. There are differences in policies at the Union, State, and Municipal or city level, which have an individual and combined impact on the country’s standard of living. These policies include decisions on direct and indirect taxes, subsidies, pensions, and other direct transfers, as well as public spending on education and health. This Commitment to Equity (CEQ) study tries to analyse the individual and combined impact of these policies on poverty and income distribution in India. The report has used household consumption expenditure data from the National Sample Survey (NSS) of such expenditure, undertaken in 2011-12, as the base for its income-distribution analysis. It has also used other surveys, such as the NSS survey of household consumption expenditure on Education and Health, conducted in 2014, the Indian Human Development Survey, and NSS Employment and Unemployment survey in 2011-12, to impute values of cash and in-kind transfers, as well as direct taxes. After a detailed examination of all the policies, we found that government interventions play a significant role in reshaping income distribution by reducing poverty and inequality. India’s taxation policies are progressive, as the lion’s share of taxes is collected from the top 10 per cent of the population. Similarly, policies such as the Public Distribution System (PDS) subsidy, spending on education and health, and direct cash transfers through the rural employment scheme MGNREGS play an equalising role in overall income distribution.
    Keywords: Fiscal Policies, poverty, inequality, direct and indirect taxes, PDS, Electricity Subsidy, MGNREGS, Pensions
    JEL: D31 E62 H22 I14 I24 I38
    Date: 2022–04

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