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on Public Finance |
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Issue of 2008‒01‒05
twenty-one papers chosen by |
| By: | Dagney Faulk; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Sally Wallace (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | There are good arguments for an individual income tax on “potential income”, but the drawback to such a tax is the significant administrative concern regarding the implementation of the tax. This paper argues that human capital theory provides a widely accepted and straightforward method to estimate “potential income” using observed characteristics of individuals, and operationalizes this approach using data for the U.S.A. The paper also suggests that a “potential income tax” is very similar to a “presumptive income tax.” The paper concludes by reviewing some significant problems with the implementation of a potential/presumptive income tax. |
| Keywords: | Human Capital, Potential Income Tax, presumptive income tax |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0710&r=pub |
| By: | Janet Holtzblatt |
| Abstract: | Many countries do not require all taxpayers to file an annual income tax return. Return-free systems shift some of the costs of operating the tax system from taxpayers to employers, other third parties, and the government. Return-free systems may work best when the tax system is relatively simple: when the unit of taxation is the individual, the tax rate structure is relatively flat, and there are few deductions and credits. The more the tax code is used to achieve tax and social policy goals other than simplification, the more difficult it may be to exempt most taxpayers from filing requirements. |
| Keywords: | Return-Free Tax Systems, Individual Income Tax, tax policy, social policy |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0713&r=pub |
| By: | John W. Diamond; George R. Zodrow |
| Abstract: | The general idea is the following: any tax authority that respects basic human rights has to impose taxes on a base to avoid random and arbitrary taxation. The tax base should be announced prior to the imposition of the tax and therefore, taxpayers are given an advanced warning concerning the tax base. The advanced warning enables the taxpayers to adjust the tax base to the new circumstances so that they can adjust their behavior to the existence of the tax. This adjustment of the tax base by the taxpayer is responsible to the excess burden of the tax. Retroactive taxes, that is taxes imposed on tax bases determined in the past and that, therefore, cannot be changed by the taxpayers are considered as unethical. Although the determination of the tax base is just the first stage in the taxation process- tax liability is determined by applying a rate or a schedule of rates to the base- most of the complications that arise in taxation (and as a result are responsible for administrative and compliance costs) arise in the determination of the tax base. |
| Keywords: | Personal Capital Income Tax, Consumption Tax, tax bas, tax authority |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0715&r=pub |
| By: | Shlomo Yitzhaki |
| Abstract: | The general idea is the following: any tax authority that respects basic human rights has to impose taxes on a base to avoid random and arbitrary taxation. The tax base should be announced prior to the imposition of the tax and therefore, taxpayers are given an advanced warning concerning the tax base. The advanced warning enables the taxpayers to adjust the tax base to the new circumstances so that they can adjust their behavior to the existence of the tax. This adjustment of the tax base by the taxpayer is responsible to the excess burden of the tax. Retroactive taxes, that is taxes imposed on tax bases determined in the past and that, therefore, cannot be changed by the taxpayers are considered as unethical. Although the determination of the tax base is just the first stage in the taxation process- tax liability is determined by applying a rate or a schedule of rates to the base- most of the complications that arise in taxation (and as a result are responsible for administrative and compliance costs) arise in the determination of the tax base. |
| Keywords: | Cost Benefit Analysis, Presumptive Taxation, administrative cost, compliance cost, tax compliance |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0714&r=pub |
| By: | Richard Layard; Guy Mayraz; Stephen J. Nickell |
| Abstract: | In normative public economics it is crucial to know how fast the marginal utility of income declines as income increases. One needs this parameter for cost-benefit analysis, for optimal taxation and for the (Atkinson) measurement of inequality. We estimate this parameter using four cross-sectional surveys of subjective well-being and two panel surveys. Altogether, we use data from over 50 countries, and in a period extending from 1972 to 2005. In all six surveys we find a consistent relationship between reported well-being and income. We estimate the elasticity of marginal utility with respect to income at around (minus) 1.26. In the second part of the paper we ask whether true utility may not have a convex relationship to reported happiness, making it less concave with respect to income. We find some evidence of this, so that the elasticity of marginal utility with respect to income may be somewhat lower at roughly (minus) 1.2. |
| Keywords: | Marginal utility, income, life satisfaction, happiness, public economic, welfare, inequality, optimal taxation, reference-dependent preferences |
| JEL: | I31 H00 D1 D61 H21 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp50&r=pub |
| By: | John R. Graham; Lillian F. Mills |
| Abstract: | We document that simulated corporate marginal tax rates based on financial statement data (Shevlin 1990 and Graham 1996a) are highly correlated with simulated rates based on corporate tax return data. We provide algorithms that can be used to estimate the book or tax simulated rates when they are not available. We find that the simulated book marginal tax rate does a better job of explaining financial statement debt ratios than does the analogous tax return variable and discuss how the book simulated rate is likely to be an appropriate measure in settings with global, long-term considerations. |
| JEL: | G32 H25 M41 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13709&r=pub |
| By: | Alesina, Alberto F; Ichino, Andrea; Karabarbounis, Loukas |
| Abstract: | Gender Based Taxation (GBT) satisfies Ramsey’s optimal criterion by taxing less the more elastic labour supply of (married) women. This holds when different elasticities between men and women are taken as exogenous and primitive. But in this paper we also explore differences in gender elasticities which emerge endogenously in a model in which spouses bargain over the allocation of home duties. GBT changes spouses’ implicit bargaining power and induces a more balanced allocation of house work and working opportunities between males and females. Because of decreasing returns to specialization in home and market work, social welfare improves by taxing conditional on gender. When income sharing within the family is substantial, both spouses may gain from GBT. |
| Keywords: | economics of gender; elasticity of labour supply; family economics; optimal taxation |
| JEL: | D13 H21 J16 J20 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6591&r=pub |
| By: | Klara Sabirianova Peter (Andrew Young School of Policy Studies); Steve Buttrick; Denvil Duncan |
| Abstract: | In this paper we use a panel of 189 countries to describe the salient trends that have emerged in national personal income tax systems spanning the twenty five year period from 1981 to 2005. Using complete national income tax schedules with statutory rates, thresholds, country-specific tax formulas and other information, we calculate actual average and marginal tax rates at different income levels as well as time-varying measures of structural progressivity and complexity of national tax systems. Overall, our analysis shows a significant transition from complex, graduated tax schedules that featured multiple tax brackets and stair stepped tax rates to simpler, flatter tax schedules distinguished by fewer tax brackets and lower rates. The emerging trend toward flat tax schedules is also highlighted. We show that frequent alterations of tax structures have diminished the overall progressivity and complexity of national tax systems; however, the degree of this change varies considerably by country group. |
| Keywords: | Personal Income Taxation, flat tax, progressivity, national tax system, personal income tax system |
| Date: | 2007–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0721&r=pub |
| By: | Charles E. McLure; George R. Zodrow |
| Abstract: | Although consumption-based direct taxation has long been advocated in academic and policy circles, very few countries have actually implemented such taxes. This article analyzes numerous attempts to implement various forms of consumption-based direct taxation around the world, drawing on the authors' experiences with some of these efforts. It provides an overview of alternative approaches to direct consumption taxation, examines arguments favoring consumption taxes over income taxes, and then analyzes efforts at “fundamental tax reform” – that involved replacing an income tax with a consumption tax – in both the United States and numerous developing countries and countries in transition from socialism. |
| Keywords: | Consumption-Based Direct Taxes, income taxes, consumption taxes |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0716&r=pub |
| By: | Roy Bahl (Andrew Young School of Policy Studies, Georgia State University); Sally Wallace (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | Over the past decade, a number of countries have shifted to single rate tax systems with broader bases and lower rates. In the U.S. , there continues to be discussion of the merits of a consumption tax, and of base-broadening reforms to the income tax system. The objective of this paper is to demonstrate how, over time, a conventional income tax could be converted to a flat rate consumption tax in a developing country. The value of this analysis, we hope, comes with the use of a real world situation ( Jamaica ), which allows us to focus on the detail that determines the feasibility of transitioning to a flat rate tax on consumption. Our main contribution is to show the conditions under which the switch can be revenue neutral. |
| Keywords: | Income Tax, Consumption Tax, Jamaica, Jamaica tax system |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0712&r=pub |
| By: | Peter Haan; Katharina Wrohlich |
| Abstract: | This paper contributes to the debate about the optimal design of tax-transfer systems. Based on the theory of optimal taxation, combined with microsimulation and microeconometric techniques we derive the welfare function which makes the current German tax and transfer system for single women optimal. Furthermore, we compare the welfare function conditional on the presence and age of children and asses how reforms of in-kind childcare transfers would affect the welfare function. This analysis allows us to derive conclusions about the optimal design of child related transfers and in-kind benefits. |
| Keywords: | Optimal taxation, labor supply behavior, transfers for children |
| JEL: | C23 C25 J22 J64 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp65&r=pub |
| By: | James Alm (Andrew Young School of Policy Studies, Georgia State University); Pablo Saavedra; Edward Sennoga |
| Abstract: | Individuals in most all countries face a wide range of direct taxes on their income, especially variants of the individual income tax and payroll taxes. For the income tax, attempts are often made to reduce the compliance and administrative costs of the tax by using “presumptive” or “simplified” methods, in which the tax liability is determined indirectly from some simple indicators that are more easily measured than the “true” tax base itself. However, when a “simplified” income tax is combined with other direct taxes on individuals, the ways in which these taxes interact, their combined effects on revenues, resource allocation, and income distribution, and the appropriate design of the overall system of these taxes remain unresolved – and unexplored – issues. This paper examines these issues, focusing on the experience of Ukraine . A simple computable general equilibrium model is used to quantify many of the effects of the “system” of simplified, income, and payroll taxes. |
| Keywords: | Income Tax, payroll Tax, Ukraine, individual tax, presumptive method |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0711&r=pub |
| By: | Bernd Genser; Andreas Reutter |
| Abstract: | The paper summarizes the arguments in favor of a shift from comprehensive to dual income taxation and complements the discussion by an overview on tax reforms which reveal the characteristic features of a dual income tax system. The scope of our analysis is not restricted to the Nordic countries, we also include other European countries, whose tax reform steps can be regarded as a move toward a dual income tax. We focus on problems of running a final withholding income tax regime under individual and household taxation including the most recent dual income tax reforms in the Nordic countries, but nevertheless argue that it may be worthwhile for the Commission to consider dual income taxation as a blueprint for income tax coordination in the EU. |
| Keywords: | Dual Income Taxation, tax reforms. imcome tax, nordic countries tax reform |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0717&r=pub |
| By: | Yuriy Gorodnichenko; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Klara Sabirianova Peter (Andrew Young School of Policy Studies) |
| Abstract: | Using micro-level data, we examine the effects of Russia’s 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004. Utilizing difference-in-difference and regression-discontinuity-type approaches, we find that large and significant changes in tax evasion following the flat tax reform are associated with changes in voluntary compliance and cannot be explained by changes in tax enforcement policies. We also find the productivity response of taxpayers to the flat tax reform is small relative to the tax evasion response. Finally, we develop a feasible framework to assess the deadweight loss from personal income tax in the presence of tax evasion based on the consumption response to tax changes. We show that because of the strong tax evasion response the efficiency gain from the Russian flat tax reform is at least 30% smaller than the gain implied by conventional approaches. |
| Keywords: | tax evasion, consumption-income gap, personal income tax, flat tax, difference-in-difference, regression discontinuity, deadweight loss, transition, Russia. |
| Date: | 2007–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0720&r=pub |
| By: | Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Benno Torgler (World Bank) |
| Abstract: | This paper studies the evolution of tax morale in Spain in the post-Franco era. In contrast to the previous tax compliance literature, the current paper investigates tax morale as the dependent variable and attempts to answer what actually shapes tax morale. The analysis uses survey data from two sources: the World Values Survey and the European Values Survey, allowing us to observe tax morale in Spain for the years 1981, 1990, 1995, and 1999/2000. The study of the evolution of tax morale in Spain over nearly a 20-year span is particularly interesting because the political and fiscal system evolved very rapidly during that period. |
| Keywords: | Tax Morale, Spain, tax compliance, fiscal system |
| Date: | 2007–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0719&r=pub |
| By: | Frank M. Fossen |
| Abstract: | Which role do individual income prospects play in the decision to be an entrepreneur rather than an employee? In a model of occupational choice, higher expected after-tax earnings attract people to self-employment, while more risky net earnings deter risk-averse individuals. In this paper I analyse the expected value and variance of income in self-employment and dependent employment empirically, accounting for selection. Based on this analysis, structural models of self-employment entry and exit under risk are estimated, which include a standard risk aversion parameter. The model predicts that the German income tax reduction of 2000 induced smaller exit rates out of self-employment for men and smaller entry rates for women. |
| Keywords: | Entrepreneurship, Risk, Returns to Self-Employment, Taxation |
| JEL: | J23 H24 D81 C51 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp29&r=pub |
| By: | Blumkin, Tomer; Ruffle , Bradley J.; Ganun , Yosef |
| Abstract: | The public finance literature demonstrates the equivalence between consumption and labor income (wage) taxes. We construct an environment in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this experimental framework to test whether a labor income tax and an equivalent consumption tax lead to an identical labor-leisure allocation. Despite controlling for subjects' work ability and inherent labor-leisure preferences and not allowing for saving, subjects reduce their labor supply significantly more in response to an income tax than they do in response to an equivalent consumption tax. We discuss the economic implications of a policy shift from an income to a consumption tax. |
| Keywords: | experimental economics; tax equivalence; income tax; consumption tax; behavioral economics |
| JEL: | H22 H31 C91 |
| Date: | 2007–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6479&r=pub |
| By: | Francesco Figari; Herwig Immervoll; Horacio Levy; Holly Sutherland |
| Abstract: | In spite of there being few elements of tax or cash benefit systems in developed countries that are any longer explicitly gender-biased in a discriminatory sense, it is well recognised that they have significant gender effects. To the extent that women earn less than men on average under tax-benefit systems that are progressive, there is some redistribution from men to women overall. However, an aggregate perspective is insufficient for understanding how earning opportunities and public policies affect living arrangements at the family level in general and the circumstances of men and women in particular. Arguably, it is within the household that a gendered division of labour is most relevant. It is difficult to observe how income and other resources get allocated within households. We can, however, observe the incomes brought into the household and to what extent taxes and benefits mitigate (or indeed exacerbate) any inequality of income between men and women. We explore the effects of tax and benefit systems on differences in income and in incentives to earn income between men and women within couples in a selection of the member countries of the European Union (EU) using EUROMOD, the EU tax-benefit microsimulation model. This comparative perspective allows us to establish the relative effects of different policy regimes, given the underlying characteristics of each national population, using a consistent approach and set of incidence assumptions across countries. |
| Keywords: | within-household inequality, tax-benefit systems, Europe, gender |
| JEL: | D31 H31 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp74&r=pub |
| By: | Patrick A. Imam; Davina F. Jacobs |
| Abstract: | This study estimates the impact of corruption on the revenue-generating capacity of different tax categories in the Middle East. We find that the low revenue collection as a share of GDP there compared to other middle-income regions is due in part to corruption, and certain taxes are more affected than others. Taxes that require frequent interaction between the tax authority and individuals, such as taxes on international trade, seem to be more affected by corruption than most other types of taxation. This suggests that if governments need to raise more tax revenues in a way that minimizes distortions and maximizes social welfare, they should implement reforms that either reduce corruption or raise revenues from tax categories that are less susceptible to corruption. Possible reforms of the revenue system and administration are examined. |
| Keywords: | Corruption , Middle East , Tax revenues , Taxes , Tax systems , Tax administration , |
| Date: | 2007–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/270&r=pub |
| By: | Matthew Chambers; Carlos Garriga; Don Schlagenhauf |
| Abstract: | This paper analyzes the connection between the asymmetric tax treatment of homeowners and landlords and the progressivity of income taxation using a quantitative overlapping generations general equilibrium model with housing and rental markets. Our model emphasizes the determinants of tenure choice (own vs. rent) and the household decision to supply housing services to the rental market. This formulation breaks the link between the rental price and the equilibrium interest rate and, hence, the aggregate supply of rental property responds differently to the direction of rental price changes, marginal tax rate changes, and maintenance cost changes. We show that the model replicates the key factors and the distributional patterns of ownership, house size, and landlords. The degree of progressivity in the income tax code has important implications for housing tenure and housing consumption. We find a movement toward a less progressive income tax code can generate sizeable increases in homeownership and welfare that result from the equilibrium effects and a portfolio reallocation mechanism absent in economies with a single asset (i.e. Conesa and Krueger (2006)). An examination of the removal of existing asymmetries in the tax code are found to have effects on housing that differ from those reported in the literature. We show that housing policy can increase the ownership rate of a particular segment of the population, but generate nontrivial distributional costs. The welfare increases are no larger than those found when the progressivity of the tax code is reduced. |
| Keywords: | Home ownership ; Taxation |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-053&r=pub |
| By: | Francesco Figari (ISER, University of Essex); Herwig Immervoll (OECD, ISER, University of Essex, European Centre Vienna and IZA); Horacio Levy (ISER, University of Essex); Holly Sutherland (ISER, University of Essex) |
| Abstract: | In spite of there being few elements of tax or cash benefit systems in developed countries that are any longer explicitly gender-biased in a discriminatory sense, it is well recognised that they have significant gender effects. To the extent that women earn less than men on average under tax-benefit systems that are progressive, there is some redistribution from men to women overall. However, an aggregate perspective is insufficient for understanding how earning opportunities and public policies affect living arrangements at the family level in general and the circumstances of men and women in particular. Arguably, it is within the household that a gendered division of labour is most relevant. It is difficult to observe how income and other resources get allocated within households. We can, however, observe the incomes brought into the household and to what extent taxes and benefits mitigate (or indeed exacerbate) any inequality of income between men and women. We explore the effects of tax and benefit systems on differences in income and in incentives to earn income between men and women within couples in a selection of the member countries of the European Union (EU) using EUROMOD, the EU tax-benefit microsimulation model. This comparative perspective allows us to establish the relative effects of different policy regimes, given the underlying characteristics of each national population, using a consistent approach and set of incidence assumptions across countries. |
| Keywords: | within-household inequality, tax-benefit systems, Europe, gender |
| JEL: | D31 H31 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3201&r=pub |