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on Public Economics |
| By: | Richard K. Green and Mark D. Phillips |
| Abstract: | We develop a model for determining the optimal high income linear tax rate when there exist imperfectly substitutable types of labor. If one type is disproportionately prevalent among higher income taxpayers, then wages adjust in response to more progressive taxation and part of the statutory tax burden is shifted to lower income taxpayers. Our derivation is expressed in terms of readily interpretable elasticity and income distribution parameters which we use to estimate the optimal top tax rate under various plausible alternatives. We reject the notion from the previous literature that wage adjustments are costly enough (from a social welfare perspective) to warrant non-progressive taxation, much less subsidization of high income taxpayers. However, we also estimate that the optimal tax rate may be significantly smaller than when incidence effects are ignored, and may in fact be quite similar to current rates under U.S. policy. |
| Keywords: | Optimal income taxation; tax incidence ;income distribution |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:luk:wpaper:9409&r=pbe |
| By: | Alan Manning |
| Abstract: | The main political parties disagree about the appropriate rate of income Tax on the highest incomes. This note lays out the economic principles surrounding the top rate of income tax and considers the evidence that high earners respond to higher tax rates by working less or by taking steps to avoid tax. The evidence suggests that increased avoidance rather than reduced labour supply is the biggest problem when raising tax rates on the rich. |
| Keywords: | Top rate of income tax |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepeap:029&r=pbe |
| By: | Matteo Ghilardi; Sergio Sola |
| Abstract: | This paper studies the fiscal implications for the Beninese economy of scaling up of public investment when the government is subject to inefficiencies on the spending and on the tax collection side. While scaling up of public investments results in higher long-run output and consumption levels, a fiscal stabilization package is required in order to preserve fiscal sustainability. A welfare analysis shows that consumers’ welfare is increased when the government smoothes the fiscal adjustment via higher borrowing. Moreover, the comparison between several stabilization packages highlights the fact that higher welfare is achieved when the government relies mostly on taxation of capital as this allows higher levels of consumption to materialize earlier. Lower fiscal costs can however be achieved if the government manages to reduce inefficiency in tax collection. Finally, we consider a change in the trade regime that causes a decline in revenues. We find that the higher fiscal burden required to preserve fiscal sustainability would completely wipe out the welfare gain of higher public investments. |
| Keywords: | Public investment;Benin;Infrastructure;Expenditure efficiency;Tax collection;Fiscal stabilization;Fiscal sustainability;General equilibrium models;Public Investment, Government Inefficiencies, Debt Sustainability, Fiscal Policy, Infrastructure. |
| Date: | 2015–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/69&r=pbe |
| By: | Agnes Sipos (Budapest Business School) |
| Abstract: | Based on our assumption, tax morale significantly depends on a country’s legal, historical, social and cultural background and circumstances. In the first part of the paper, we discuss the legal dimension of the tax morale – including the interconnection of law, ethics and moral. Furthermore, we analyze the facts breaching tax liabilities under the scope of the criminal law and the actions violating the tax morale but not qualified as infringement of the criminal law. In the second part of the paper, we provide empirical evidences which factors (e.g. personal characteristics, commitment for paying local taxes, knowledge about the distribution of paid taxes between central and local authorities, etc.) determine significantly the individual level of tax morale. The paper discusses these complex connections either from the viewpoint of law or economics in order to find out whether it is possible to develop the tax morale of individuals, or can the legislator adequately rule the different forms of tax evasion. |
| Keywords: | tax morale, legal morale, tax regime, tax system |
| JEL: | H21 H23 H24 H26 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no101&r=pbe |
| By: | Giampaolo Arachi; Valeria Bucci; Alessandra Casarico |
| Abstract: | This paper reassesses the relationship between tax structure and long run income, using as indicators of tax structure both a new series of implicit tax rates based on Mendoza et al. (1997) and tax ratios, adopting a dynamic panel estimation strategy, and explicitly accounting for cross-section dependence in the panel. When implicit tax rates are used, the paper shows, the link between tax structure and long run income per capita is not robust to the adoption of different assumptions on observable and unobservable heterogeneity across countries. When tax ratios are used, there is some evidence of a negative impact of labour taxation on long run income, but this result is shown to capture non-fiscal effects coming from the evolution of the labour share. Turning to the short run, the research presented here finds strong evidence of a positive effect on per capita income of a tax shift from labour and capital taxation towards consumption taxation, which provides support for fiscal devaluations. |
| Keywords: | long run income, tax structure, fiscal devaluation, cross-section dependence |
| URL: | http://d.repec.org/n?u=RePEc:don:donwpa:074&r=pbe |
| By: | Sarolta Laczó (Bank of England; Centre for Macroeconomics (CFM)); Raffaele Rossi (Department of Economics Management School Lancaster University) |
| Abstract: | We characterise optimal fiscal policies in a Real Business Cycle model when the government has access to consumption taxation but cannot credibly commit to future policies. Contrary to the case where only labour and capital income are taxed, the optimal time-consistent policies are remarkably similar to their Ramsey counterparts, as long as the capital income tax causes some distortion within the period. The welfare gains from commitment are negligible, while they are substantial without consumption taxation. Further, the welfare gains from taxing consumption are much higher without commitment. These results suggest that the policy-maker's ability to commit is of secondary importance if consumption is taxed optimally. |
| Keywords: | fiscal policy, Markov-perfect policies, consumption taxation, variable capital utilisation, endogenous government spending |
| JEL: | E62 H21 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1508&r=pbe |
| By: | Raphael W. Lam; Philippe Wingender |
| Abstract: | Revenue reforms can contribute to more inclusive, green, and sustainable growth in China. Relative to OECD economies, fiscal policy in China is less redistributive. Options for promoting more inclusive growth include improving the progressivity of labor taxes (individual income tax and social security contributions), introducing a recurrent property tax, and finishing the transition to a comprehensive value-added tax. Higher environmental taxes, meanwhile, would promote more environment-friendly economy. These reforms could also significantly boost revenue, potentially by as much as 6½ percent of GDP. Such increases in revenue could help reduce the deficit, finance priority social and infrastructure spending, and offset cuts in other taxes. We illustrate how these revenue reforms could be part of a comprehensive fiscal package that achieves the needed consolidation in the (augmented) deficit and foster higher quality growth. |
| Keywords: | Tax revenues;China;Tax reforms;Fiscal reforms;Inclusive growth;Tax systems;fiscal Policy, China, tax reforms, government debt, social security |
| Date: | 2015–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/66&r=pbe |
| By: | C. Benassi; E. Randon |
| Abstract: | We consider the interplay between income distribution and optimal commodity taxation, linking equity issues to optimal taxes through the effect of income distribution on market demand and its price elasticity. We find conditions to conciliate the equity and efficiency tradeoff and to assess the impact of inequality changes on the optimal taxation of necessity and luxury goods. We show that the regressivity or progressivity of the tax system is determined by the distribution of luxuries and necessities in the economy. If the tax system is regressive (progressive), a decrease (increase) of income inequality leads to an average decrease of the optimal tax rates, achieving welfare gains for society. Our analysis provides a framework to investigate the linkages between direct and indirect taxation. |
| JEL: | H21 D63 D11 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1001&r=pbe |
| By: | Catrine Jacobsen (Department of Food and Resource Economics, University of Copenhagen); Marco Piovesan (Department of Economics, University of Copenhagen) |
| Abstract: | In this paper, we test whether increased salience of a tax charge increases dishonesty using a version of the die-under-cup paradigm. Participants earn money in proportion to the outcome reported and, thus, have an incentive to over-report. We find a significant increase in high outcomes in the presence of a tax frame suggesting that participants use the tax as an excuse to rationalize their dishonest act. In addition, we tested whether adding an explanation for the adoption of the tax would increase honesty. We find evidence for reversed dishonesty with participants reporting significantly more low outcomes. These results warn policy makers about the non-trivial relationship between taxation charges and dishonesty. |
| Keywords: | Dishonesty, Tax evasion, Deduction, Framing |
| JEL: | C9 D03 H26 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2015_05&r=pbe |
| By: | Serhan Cevik; Carolina Correa-Caro |
| Abstract: | This paper investigates the empirical characteristics of income inequality in China and a panel of BRIC+ countries over the period 1980–2013, with a focus on the redistributive contribution of fiscal policy. Using instrumental variable techniques to deal with potential endogeneity, we find evidence supporting the hypothesis of the existence of a Kuznets curve—an inverted Ushaped relationship between income inequality and economic development—in China and the panel of BRIC+ countries. In the case of China, the empirical results indicate that government spending and taxation have opposing effects on income inequality. While government spending appears to have a worsening impact, taxation improves income distribution. Even though the redistributive effect of fiscal policy in China appears to be stronger than what we identify in the BRIC+ panel, it is not large enough to compensate for the adverse impact of other influential factors. |
| Keywords: | Income inequality;China;Brazil;Russian Federation;India;Fiscal policy;Income distribution;Economic growth;Cross country analysis;Time series;Panel analysis;Income distribution, income inequality, fiscal policy |
| Date: | 2015–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/68&r=pbe |
| By: | Joanna Stryjek (Warsaw School of Economics) |
| Abstract: | Tax incentives for innovation, including in particular the incentives for R&D investments, are universally used policy tools. Their availability and generosity have significantly increased over the past three decades. The observed proliferation of R&D tax incentives raises the question of the effectiveness (as well as other potential unknown advantages) of these policy instruments. The purpose of this paper is to carry out an analysis of the reasons (1) why R&D tax incentives became such a popular policy tool and (2) why there was an increase in generosity of this kind of incentives in recent years. As far as the theoretical base for the analysis is concerned, the paper refers particularly to (1) the inter-jurisdictional competition theories relating to tax competition and (2) the (quasi-) public-good nature of knowledge and innovation. The analysis is carried out with the use of the existing data and research on the subject. The results indicate that these are the changes (processes taking place) in the international environment that have considerably stimulated the proliferation and the increase in generosity of R&D tax incentives. |
| Keywords: | innovation; R&D; tax incentives; tax credit; tax competition |
| JEL: | O31 O38 H21 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no109&r=pbe |
| By: | Peter Casey; Patricio Castro |
| Abstract: | Several administrations have adopted electronic fiscal devices (EFDs) in their quest to combat noncompliance, particularly as regards sales and the value-added tax (VAT) payable on sales. The introduction of EFDs typically requires considerable effort and has costs both for the administration and for the taxpayers that are affected by the requirements of the new rules. Despite their widespread use, and their considerable cost, EFDs can only be effective if they are a part of a comprehensive compliance improvement strategy that clearly identifies risks for the different segments of taxpayers and envisages measures to mitigate these risks. EFDs should not be construed as the “silver bullet†for improving tax compliance: as with any other technological improvement the deployment of fiscal devices alone cannot achieve meaningful results, whether in terms of revenue gains or permanent compliance improvements. |
| Keywords: | Tax administration;Tax compliance;Value added taxes;Tax collection;Revenue administration;Technological innovation;Tax administration, electronic fiscal devises, noncompliance, VAT |
| Date: | 2015–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/73&r=pbe |
| By: | Gabriel Zucman; Gabriel Zucman |
| Abstract: | The UK's top 1% have between 12.5% and 15.5% of all income. This is mid-way between the United States (20%) and Continental Europe (8%). This share has been rising steadily since the late 1970s, mainly due to labour income (wages), but also with a role for capital income (dividends, capital gains, etc.). In the global financial crisis of 2008-09 inequality fell, but has been stable since then. It is too soon to tell whether inequality will resume its rising trend as the economy fully recovers. Overall, coalition policies have been mainly regressive. Tax credit and benefit cuts took more away in the bottom half of the income distribution than they gained from higher income tax allowances. Looking forward, wealth will be increasingly important for inequality as it is rising faster than aggregate income, and the concentration of capital income is much greater than the concentration of labour income. To combat inequality, policy should be focused on wealth (in particular inheritance) taxation, closing loopholes for capital income (e.g., non-domiciled residents), and increasing skills, especially for the disadvantaged. |
| Keywords: | inequality, wages, wealth, taxes, #electioneconomics |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepeap:030&r=pbe |
| By: | Diaz Bazan,Tania Valeria |
| Abstract: | This paper presents a new methodology to measure inequality that optimally combines household survey information and tax records to construct a complete income distribution. Combining the two data sources is necessary because, on the one hand, household surveys do not accurately represent the wealthiest segment of the population, while tax records do; on the other hand, the opposite is true for the lower end of the income distribution: tax records only include incomes above a certain threshold. The key innovation of the proposed methodology?and the main difference from the existing literature?is the choice of an optimal income threshold b. The Gini coefficient for the population is then computed combining the conditional income distributions for incomes below b (using household survey data) and above b (using tax records). Central to this methodology is the fact that b is not chosen arbitrarily: it should be determined in such a way as to minimize reliance on household survey data to compute the top of the income distribution. In practice, the optimal b corresponds to the minimum income level that triggers mandatory tax filing. The proposed methodology is applied to the case of Colombia. |
| Keywords: | Inequality,Tax Law,Poverty Impact Evaluation,Emerging Markets,Poverty Diagnostics |
| Date: | 2015–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7237&r=pbe |
| By: | Orsetta Causa; Alain de Serres; Nicolas Ruiz |
| Abstract: | This paper provides new empirical evidence on the effects of structural policies on household disposable incomes at different income levels. More specifically, it investigates the extent to which structural policies have differential long-run impacts on GDP per capita and on household incomes at different points of the distribution. One aim is to verify whether policy decisions may face tradeoffs between objectives of economic efficiency and equity. Many growth enhancing structural reforms are found to deliver stronger income gains for households at the lower end of the distribution compared with the average household, an indication that they may reduce inequality in disposable incomes. Such is the case of reducing regulatory barriers to domestic competition as well as to trade and FDI; stepping-up job-search support and activation programmes. Conversely, other reforms involve trade-offs between the efficiency and equity objective. This is the case of the tightening of unemployment benefits for the long-term unemployed, which is found to lift GDP per capita and average household incomes, but also to reduce disposable incomes at the lower end of the distribution.<P>Réformes structurelles et la distribution des revenus<BR>Cette étude presente des nouveaux résultats d’analyse empirique sur les effets des politiques structurelles sur le revenue dispoanible des ménages à differents niveaux de revenu. De manière plus spécifique, elle examine la mesure dans laquelle les politiques strucuturelles ont des impacts differents à long terme sur le PIB par habitant et le revenu des ménages, à différents points de la distribution. Un objectif consiste à vérifier si les choix de politiques impliquent des arbitrages entre les objectifs d’efficacité économique et ceux d’équité. Les résultats indiquent que plusieurs politiques favorables à la croissance entraînent des gains plus élevés pour les ménages qui se trouvent dans le bas de la distribution que pour les ménages situé autour de la moyenne, conduisant ainsi à une baisse des inégalités de revenus disponibles. C’est le cas notamment des mesures visant à réduire les barrières réglementaires à la concurrence domestique ainsi qu’au commerce extérieur et aux investissement étranger, de même que pour celles conduisant à un renforcement de l’aide à la recherche active d’emploi pour les chômeurs. À l’inverse, un resserement des indemnités chômage ciblé sur les chômeurs de longue durée réduit le revenue des ménages les plus modestes tandis qu’il entraîne une hausse du PIB par habitant et du revenu des ménages autour de la moyenne. |
| Keywords: | structural reforms, income distribution, inequality, cross-country analysis, distribution des revenus, inégalité, réforme structurelle |
| JEL: | C33 D31 H2 H31 I13 I24 J18 J3 J38 J6 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaab:13-en&r=pbe |
| By: | Julian A. Parra-Polania; Carmiña O. Vargas |
| Abstract: | We argue that international lenders take into account that taxes (or subsidies) affect borrowers’ available income for debt repayments. Using an endowment-economy model, we show that by incorporating this fact into the analysis of ?financial crises from the pecuniary externality perspective, ex-post interventions are completely ineffective to manage crises and, instead, ex-ante capital controls are useful for correcting the externality that stems from the underestimation of the social costs of decentralized debt decisions. |
| Keywords: | financial crisis, credit constraint, capital controls, macroprudential tax, exchange rate policy. |
| JEL: | H23 D62 F34 F41 |
| Date: | 2015–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:012698&r=pbe |
| By: | Agnieszka Ma³kowska (Uniwersytet Ekonomiczny w Krakowie); Michal Gluszak (Uniwersytet Ekonomiczny w Krakowie) |
| Abstract: | In the article we discuss importance of the real estate related instruments, used by local government to attract investment and stimulate local economic development. The article discusses economic literature related to public economics at local government level, with the special emphasis put on link between urban and real estate economics and development. In the empirical part of the paper we analyze results of survey conducted at a local government level in Poland (Malopolska). There are two major research objectives: (1) to identify the scope of the real estate economic instruments used by the communes as part of their development policies’ strategies; (2) to examine the coexistence of certain types of instruments as part of the commune development strategies. To find relevant answers both multidimensional scaling and cluster analysis are applied. Additionally, we discuss whether there are evidence of mimicking behavior in local development policies. |
| Keywords: | public economics; real estate economics; policy mimicking; local policy instruments; clustering |
| JEL: | H7 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no77&r=pbe |