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on Public Finance |
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Issue of 2014‒03‒01
six papers chosen by |
| By: | Casey Rothschild; Florian Scheuer |
| Abstract: | We develop a unifying framework for optimal income taxation in multi-sector economies with general patterns of externalities. Agents in this model are characterized by an N-dimensional skill vector corresponding to intrinsic abilities in N potentially externality-causing activities. The private return to each activity depends on individual skill and an aggregate activity-specific return, which is a fully general function of the economy-wide distribution of activity-specific efforts. We show that the N dimensional heterogeneity can be collapsed to a one-dimensional, endogenous statistic sufficient for screening. The optimal tax schedule features a multiplicative income specific correction to an otherwise standard tax formula. Because externalities change the relative returns to different activities, corrective taxes induce changes in the across activity allocation of effort. These relative return effects cause the optimal correction to diverge, in general, from the Pigouvian tax that would align private and social returns. We characterize this divergence and its implications for the shape of the tax schedule both generally and in a number of applications, including externality free economies, increasing and decreasing returns to scale, zero-sum activities such as bargaining or rent extraction, and positive or negative spillovers. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stippp:19&r=pub |
| By: | Bargain, Olivier; Callan, Tim; Doorley, Karina; Keane, Claire |
| Abstract: | This paper examines the impact on inequality and poverty of the economic crisis in four European countries, namely France, Germany, the UK and Ireland, and the contribution of tax and benefit policy changes. The period examined, 2008 to 2010, was one of great economic turmoil, yet it is unclear whether changes in inequality and poverty rates over this time period were mainly driven by changes in market income distributions or by tax- benefit policy reforms. We disentangle these effects by producing counterfactual ("no reform") scenarios using tax-benefit microsimulation and representative household surveys of each country. For the period under study, we find that the policy reaction has contributed to stabilizing or even decreasing inequality and relative poverty in the UK, France and especially in Ireland, a country where rising unemployment would have otherwise increased poverty. Market income inequality has nonetheless pushed up inequality and relative poverty in France. Relative poverty and, notably, child poverty, have increased in Germany due to policy responses combined with the increasing inequality of market income. |
| Keywords: | Tax-benefit policy; Inequality; Poverty; Decomposition; Microsimulation; Crisis. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp474&r=pub |
| By: | Vivek Prasad (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | This paper examines the macroeconomic effects of unexpected, exogenous, simultaneous, temporary cuts to income tax rates in an economy when the government follows a balanced budget fiscal rule and keeps money supply constant, and private agents face constraints on the ability to finance investments. The main results are that the tax cuts increase output, private consumption, and investment; the increases in output and consumption are significant and long-lasting; and the liquidity constraints play a major role in the shock's long-term persistence. Results are obtained from calibrating a modified version of the DSGE model of liquidity and business cycles by Kiyotaki and Moore (2012). The modifications are twofold: (i) distortionary taxes to labour and dividend incomes are added, and (ii) the government follows a balanced budget fiscal rule and keeps money supply constant. Results are qualitatively robust, but quantitatively sensitive, to assumptions regarding structural parameter values, and qualitatively and quantitatively sensitive to significant variations in the persistence of tax shocks. |
| Keywords: | Fiscal policy, taxation, balanced budget, liquidity constraints. |
| JEL: | E10 E20 E30 E44 E50 E62 H30 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1401&r=pub |
| By: | Tuomas Matikka |
| Abstract: | This paper uses extensive Finnish panel data from 1995?2007 to analyze the elasticity of taxable income (ETI). I use individual changes in flat municipal income tax rates as an instrument for the overall changes in marginal tax rates. This instrument is not a function of individual income, which is the basis for an exogenous instrument in the taxable income model. In general, instruments used in previous studies do not have this feature. Furthermore, I estimate behavioral responses using smaller subcomponents of taxable income, such as working hours, fringe benefits and tax deductions. This ?anatomy? of overall ETI has rarely been studied in the literature. The results show that the average ETI estimate in Finland is 0.35?0.60, depending on the empirical specification and the degree of regional controlling. Subcomponent analysis suggests that neither work effort nor labor supply respond actively to tax changes. In contrast, it seems that fringe benefits and deductions from taxable income might have a larger effect. |
| Keywords: | Personal income taxation, Elasticity of taxable income, Deadweight loss |
| JEL: | H24 H21 H31 |
| Date: | 2014–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:55&r=pub |
| By: | Du Rietz, Gunnar (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN)) |
| Abstract: | This paper describes the evolution of capital income taxation, including corporate, dividend, interest, capital gains and wealth taxation, in Sweden between 1862 and 2010. To illustrate the evolution, we present annual time-series data on the marginal effective tax rates on capital income (METR) for a marginal investment financed with new share issues, retained earnings or debt. Tax tables covering the period are presented. These data are unique in their consistency, thoroughness and time span covered. The METR is low, is stable and does not exceed five percent until World War I, when it starts to drift somewhat upward and vary depending on the source of finance. The outbreak of World War II starts a period when the magnitude and variation of the METR sharply increases. The METR peaks during the 1970s and 1980s and often exceeds 100 percent. The 1990–1991 tax reform and lower inflation reduce the magnitude and variation of the METR. The METR varies between 15 and 40 percent at the end of the examined period. |
| Keywords: | cost of capital; marginal effective tax rates; marginal tax wedges; tax reforms |
| JEL: | H21 H31 N44 |
| Date: | 2014–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2014_002&r=pub |
| By: | Anya Savikhin Samek (School of Human Ecology, University of Wisconsin-Madison); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and the Economic Science Institute, Chapman University,) |
| Abstract: | Studies show that identifying contributors significantly increases contributions to public goods. In practice, however, viewing identifiable information is costly, which may discourage people from accessing such information. To address this question, we design a public goods experiment in which participants can pay a fee to view information about identities and corresponding contributions of their group members. We then compare this to a treatment in which there is no identifiable information, and a treatment in which all contributors are freely identified. Our main findings are that: (1) contributions in the treatment with costly information are as high as those in the treatment with free information, (2) participants choose to view the information about 10% of the time, and (3) being a high contributor is positively correlated with choosing to view identifiable information about others. Thus, it seems that having access to information is important even when such information is rarely viewed. Or findings have practical implications for non-profit organizations with a large pool of donors and for designers of recognition systems, especially in online communities with many participants. |
| Keywords: | public-goods, information, experiments |
| JEL: | C72 C91 H41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:14-04&r=pub |