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on Public Finance |
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Issue of 2008‒11‒04
ten papers chosen by |
| By: | Julio Davila (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Jan Eeckhout (University of Pennsylvania - Department of Economics); César Martinelli (Centro de Investigacion Economica - Instituto Tecnologico Autonomo) |
| Abstract: | In a simple public good economy, we propose a natural bargaining procedure whose equilibria converge to Lindahl allocations as the cost of bargaining vanishes. The procedure splits the decision over the allocation in a decision about personalized prices and a decision about output levels for the public good. Since this procedure does not assume price-taking behavior, it provides a strategic foundation for the personalized taxes inherent to the Lindahl solution to the public goods problem. |
| Keywords: | Public goods, bargaining, alternating offers. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00289435_v1&r=pub |
| By: | Jean-Olivier Hairault (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); François Langot (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales - Ecole Nationale des Ponts et Chaussées - Ecole Normale Supérieure de Paris) |
| Abstract: | This paper develops a quantitative Markovian overlapping generations model with altruistic individuals and incomplete financial markets in order to analyze the long-run distributional implications of two hypothetical public social security policy changes, made in response to impending future demographic shifts. The two policy changes considered are first, raising the tax rate while keeping the replacement rate constant and second, keeping the tax rate constant while lowering the replacement rate. Whereas this latter policy is detrimental to the relative situation of the retirees, the huge financial heterogeneity in the first scenario explains why the increase in the proportional labor tax is relatively badly absorbed by low-productivity workers, leading to an increase in welfare inequality. We show that the very popular idea that a more funded system would ineluctably lead to more inequalities in well-being can be justified only by focusing on the inequality of positions in case of general equilibrium. |
| Keywords: | Inequality, social security reform, idiosyncratic uncer-tainty, incomplete markets, altruism |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00270290_v1&r=pub |
| By: | Spadaro A (Departamento de Economia Aplicada Universidad de las Islas Baleares) |
| Abstract: | Drawing from the formal setting of the optimal tax theory (Mirrlees 1971), the paper identifies the level of Rawlsianism of some European social planners starting from the observation of real data and redistribution systems and uses it to build a metric that allows measuring the degree of (dis)similarity of the redistribution systems analyzed. It must be considered as a contribution to the comparative research on the structure and typology of the Welfare State. In particular we consider the optimal taxation model that combines both intensive and extensive margins of labor supply, as suggested by Saez (2002) in order to assess the degree of decommodification of seven European welfare systems. We recover the shape of the social welfare function implicit in tax-benefit systems by inverting the model on actual effective tax rates, as if existing systems were optimal according to some Mirrleesian social planner. Actual distributions of incomes before and after redistribution are obtained using a pan-European tax-benefit microsimulation model. Results are discussed in the light of standard classifications of welfare regimes in Europe. There appears to be a clear coincidence of high decommodification willingness and high Rawlsianism in the Scandinavian, socialdemocratically influenced welfare states (Denmark). There is an equally clear coincidence of low decommodification willingness and utilitarianism in the Anglo-Saxon liberal model (UK) and in the Southern European welfare states (Italy and Spain). Finally, the Continental European countries (Finland, Germany and France) group closely together in the middle of the scale, as corporatist and etatist. |
| Keywords: | Optimal income taxation, tax-benefit policy, microsimulation, comparative social policy analysis, welfare state models |
| JEL: | H11 H21 D63 C63 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em10/08&r=pub |
| By: | Pierre Cahuc (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); André Zylberberg (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment. It is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income. The optimal layoff tax is equal to the social cost of job destruction, which amounts to the sum of unemployment benefits (that the state pays to unemployed workers) and payroll taxes (that the state does not get when workers are unemployed). |
| Keywords: | Layoff taxes, Optimal taxation, Job destruction. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00255794_v1&r=pub |
| By: | Johann K. Brunner; Susanne Pech |
| Abstract: | Inheritances create a second distinguishing characteristic of individuals, in addition to earning abilities. We incorporate this fact into an optimum income taxation model with bequests motivated by joy of giving, and show that a tax on inherited wealth is equivalent to a uniform tax on consumption plus bequests. These taxes are desirable according to an intertemporal social objective if, on average, high-able individuals inherit more wealth than low-able. We demonstrate that such a situation results as the outcome of a process with stochastic transition of abilities over generations, if all descendants are more probable to have their parent’s ability rank than any other. |
| JEL: | H21 H24 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:jku:nrnwps:2008_02&r=pub |
| By: | Stefano Bosi (EQUIPPE - Université de Lille I, EPEE - Université d'Evry-Val d'Essonne); Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | The aim of this paper is to study the role of progressive tax rules on the allocations of steady state and the stability properties in a Ramsey economy with heterogeneous households and borrowing constraints. Since labor supply in elastic, considering different tax rates on capital and labor incomes is relevant. The steady state analysis allows us to highlight the existence of different types of stationary equilibria. While patient agents always hold capital, impatient ones have or not positive savings, depending on the leval of real interest rate. Furthermore, it is not always optimal for all households to have a positive labor supply. Studying the comparative statics and local dynamics, we focus on the steady state with a segmented population : patient households own the whole stock of capital, while the impatient ones are workers. Varying the population sizes and the tax rates, we underline the crucial role of fiscal progressivity and endogenous labor. Moreover, in contrast to many contributions, we prove that progressive tax rules can promote expectation-driven fluctuations and endogenous cycles which means that progressivity can be inopportune to stabilize macroeconomic volatility. |
| Keywords: | Progressive taxation, heterogeneous agents, borrowing constraint, endogenous labor supply, steady state allocation, macroeconomic stability. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00331299_v1&r=pub |
| By: | Bourguignon F; Spadaro A (Departamento de Economia Aplicada Universidad de las Islas Baleares) |
| Abstract: | This paper inverts the usual logic of applied optimal income taxation. It starts from the observed distribution of income before and after redistribution and corresponding marginal tax rates. Under a set of simplifying assumptions, it is then possible to recover the social welfare function that would make the observed marginal tax rate schedule optimal. In this framework, the issue of the optimality of an existing tax-benefit system is transformed into the issue of the shape of the social welfare function associated with that system and whether it satisfies elementary properties. This method is applied to the French redistribution system with the interesting implication that the French redistribution authority may appear, under some plausible scenario concerning the size of the labor supply behavioral reactions, non Paretian (e.g. giving negative marginal social weights to the richest class of tax payers). |
| Keywords: | Social Welfare Function, Optimal Income Tax, Microsimulation, Optimal Inverse Problem |
| JEL: | H11 H21 D63 C63 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em9/08&r=pub |
| By: | Immervoll H; Kleven H J; Kreiner C T; Verdelin N |
| Abstract: | This paper presents an evaluation of the tax-transfer treatment of married couples in 15 EU countries using the EUROMOD microsimulation model. First, we show that many tax-transfer schemes in Europe feature negative jointness defined as a situation where the tax rate on one person depends negatively on the earnings of the spouse. This stands in contrast to the previous literature on this question, which has focused on a specific form of positive jointness. The presence of negative jointness is driven by family-based and means-tested transfer programs combined with tax systems that usually feature very little jointness. Second, we consider the labor supply distortion on secondary earners relative to primary earners implied by the current tax-transfer systems, and study the welfare effects of small reforms that change the relative taxation of spouses. By adopting a small-reform methodology, it is possible to set out a simple analysis based on more realistic labor supply models than those considered in the existing literature. We present microsimulations showing that simple revenue-neutral reforms that lower the tax burden on secondary earners are associated with substantial welfare gains in most countries. Finally, we consider the tax-transfer implications of marriage and estimate the so-called marriage penalty. For most countries, we find large marriage penalties at the bottom of the distribution driven primarily by features of the transfer system. |
| Keywords: | labour supply, redistribution, optimal tax, couples, marriage tax, joint taxation |
| JEL: | H20 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em7/08&r=pub |
| By: | Péter Bakos (Royal Bank of Scotland); Péter Benczúr (Magyar Nemzeti Bank, Central European University.); Dóra Benedek (Central European University, Ministry of Finance.) |
| Abstract: | Many Central and Eastern European countries are adopting flat tax schemes in order to boost their economies and tax revenues. Though there are signs that some countries do manage to improve on both fronts, it is in general hard to distinguish the behavioral response to tax changes from the effect of increased tax enforcement. This paper addresses this gap by estimating the elasticity of taxable income in Hungary, one of the outliers in terms of not having a flat tax scheme. We analyze taxpayer behavior using a medium-scale tax reform episode in 2005, which changed marginal and average tax rates but kept enforcement constant. We employ a Tax and Financial Control Administration (APEH) panel dataset between 2004 and 2005 with roughly 215,000 taxpayers. Our results suggest a relatively small but highly significant tax price elasticity of about 0.06 for the population earning above the minimum wage (around 70% of all taxpayers). This number increases to around 0.3 when we focus on the upper 20% of the income distribution, with some income groups exhibiting even higher elasticities (0.45). We first demonstrate that such an elasticity substantially modifies the response of government revenues to the 2004-2005 tax changes, and then quantify the impact of a hypothetical flat income tax scheme. Our calculations indicate that though there is room for a parallel improvement of budget revenues and after-tax income, those gains are modest (2% and 1.4%, respectively). Moreover, such a reform involves important adverse changes in income inequality, and its burden falls mostly on lower-middle income taxpayers. |
| Keywords: | elasticity of taxable income, tax reform, behavioral response, revenue estimation, flat tax. |
| JEL: | H24 H31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2008/7&r=pub |
| By: | Decoster A; De Swerdt K; Orsini K |
| Abstract: | The adverse distributional effects of a flat tax are well known and have been documented by empirical research in several countries, including Belgium. Advocates of the flat tax argue, correctly, that many of these studies do not take into account agents’ behavioural reactions and possible feed back effects. One of the important effects in this context is the potential increase in labour supply and the resulting increase in the taxable base and decrease in unemployment allowances. In this study we calculate the cost recovery based on a micro-simulation model that includes a labour supply model. We find that there is indeed a clearly positive effect on labour supply and hence also on the tax base. By introducing a revenue-neutral flat tax, labour supply increases by approximately 47,000 full-time equivalents. However, the effect is limited because, compared to a static scenario, the cost recovery only allows the revenue-neutral flat tax to decrease from 38.5% to 37%. Furthermore, there is little or no impact of these employment effects on the strongly regressive nature of a flat tax reform. |
| Keywords: | flat tax, income distribution, microsimulation, labour supply |
| JEL: | C81 D31 H22 H24 J22 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em8/08&r=pub |