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on Public Finance |
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Issue of 2017‒10‒15
seven papers chosen by |
| By: | Joseph E. Stiglitz |
| Abstract: | This paper shows that there is a presumption that Pareto efficient taxation entails a positive tax on capital. When tax and expenditure policies can affect the market distribution of income, those effects need to be taken into account, reducing the burden imposed on distortionary redistribution. The paper extends the 1976 Atkinson-Stiglitz results to a dynamic, overlapping generations model, correcting a misreading of the result on the desirability of a zero capital tax. That result required separability of consumption from labor and that the only unobservable differences among individuals was in (fixed) labor productivities. In a general equilibrium model, one needs to take into account the effects of policy changes on binding self-selection constraints; and with non-separability, capital taxation depends on the complementarity/substitutability of leisure during work with retirement consumption. The final section considers taxation when there are constraints on the imposition of intergenerational transfers (either political constraints or those derived from unobservability.) It constructs a simple two class model, capitalists who maximize dynastic welfare and workers who save for retirement, whose productivity can be enhanced by (publicly provided) education. It derives a simple expression for the optimal capital tax, which is positive, so long as the social welfare function is sufficiently equalitarian and the productivity of educational expenditures are sufficiently high. |
| JEL: | E2 H2 H41 H52 I24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23892&r=pub |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Micheletto, Luca (Department of Law, University of Milan, Italy, Dondena Centre, Bocconi University, and CESifo Germany) |
| Abstract: | This paper integrates efficiency wage setting in the theory of optimal redistributive income taxation. In doing so, we use a model with two skill-types, where efficiency wage setting characterizes the labor market faced by the low-skilled, whereas the high-skilled face a conventional, competitive labor market. There are two types of jobs in this economy; a low-demanding job which can be carried out by everybody, and a high-demanding job which can only be carried out by the high-skilled, meaning that a potential mimicker may either adopt a conventional income-replication strategy or a job-replication strategy. In this framework, we show that the marginal income tax implemented for the high-skilled is negative under plausible assumptions. The marginal income tax facing the low-skilled can be either positive or negative in general, even if employment-related motives for policy intervention typically contribute to an increase in this marginal tax. An increase in the unemployment benefit contributes to relax the binding self-selection constraint (irrespective of the strategy adopted by a potential mimicker), which makes this instrument particularly useful from the perspective of redistribution. |
| Keywords: | Nonlinear income taxation; unemployment benefits; efficiency wages; redistribution |
| JEL: | H21 H42 |
| Date: | 2017–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0953&r=pub |
| By: | Daniel A. Brent (Department of Economics, Louisiana State University, Business Education Complex, Baton Rouge, LA 70803-6306, U.S.A.); Lata Gangadharan (Department of Economics, Monash University, Clayton, Australia); Anca Mihut (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France); Marie Claire Villeval (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France) |
| Abstract: | In the presence of social dilemmas, cooperation is more difficult to achieve when populations are heterogeneous because of conflicting interests within groups. We examine cooperation in the context of a non-linear common pool resource game, in which individuals have unequal extraction capacities and have to decide on their extraction of resources from the common pool. We introduce monetary and nonmonetary policy instruments in this environment. One instrument is based on two variants of a mechanism that taxes extraction and redistributes the tax revenue. The other instrument varies the observability of individual decisions. We find that the two tax and redistribution mechanisms reduce extraction, increase efficiency and decrease inequality within groups. The scarcity pricing mechanism, which is a per-unit tax equal to the marginal extraction externality, is more effective at reducing extraction than an increasing block tax that only taxes units extracted above the social optimum. In contrast, observability impacts only the Baseline condition by encouraging free-riding instead of creating moral pressure to cooperate. |
| Keywords: | Common Pool Resource game, taxation mechanisms, observability, cooperation, heterogeneity, experiment |
| JEL: | C92 H23 D74 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1726&r=pub |
| By: | Robert S. Chirinko; Daniel J. Wilson |
| Abstract: | Dramatic declines in capital tax rates among U.S. states and European countries have been linked by many commentators to tax competition, an inevitable “race to the bottom,” and underprovision of local public goods. This paper analyzes the reaction of capital tax policy in a given U.S. state to changes in capital tax policy by other states. Our study is undertaken with a novel panel data set covering the 48 contiguous U.S. states for the period 1965 to 2006 and is guided by the theory of strategic tax competition. The latter suggests that capital tax policy is a function of “foreign” (out-of-state) tax policy, preferences for government services, home state and foreign state economic and demographic conditions. The slope of the reaction function – the equilibrium response of home state to foreign state tax policy – is negative, contrary to casual evidence and many prior empirical studies of fiscal reaction functions. This result, which stands in contrast to most published findings, is due to two critical elements – allowing for delayed responses to foreign tax changes and for heterogeneous responses to aggregate shocks. Omitting either of these elements leads to a misspecified model and a positively sloped reaction function. Our results suggest that the secular decline in capital tax rates, at least among U.S. states, reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy. While striking given prior empirical findings, these results are fully consistent with the qualitative and quantitative implications of the theoretical model developed in this paper and presented elsewhere in the literature. Rather than “racing to the bottom,” our findings suggest that states are “riding on a seesaw.” Consequently, tax competition may lead to an increase in the provision of local public goods, and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective. |
| Keywords: | Tax Competition, State Taxation, Reaction Functions, Capital Taxation |
| JEL: | H71 H77 H25 H32 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:wp2017-3&r=pub |
| By: | Li Liu; Tim Schmidt-Eisenlohr; Dongxian Guo |
| Abstract: | This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It uncovers three new findings on tax-motivated transfer mispricing in real goods. First, transfer mispricing increases substantially when taxation of foreign profits changes from a worldwide to a territorial approach in the UK, with multinationals shifting more profits into low-tax jurisdictions. Second, transfer mispricing increases with a firm's R&D intensity. Third, tax-motivated transfer mispricing is concentrated in countries that are not tax havens and have low-to-medium-level corporate tax rates. |
| Keywords: | Transfer pricing ; Corporate taxation avoidance ; Multinational firms |
| JEL: | F23 H25 H32 |
| Date: | 2017–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1214&r=pub |
| By: | Clemens Fuest; Andreas Peichl; Sebastian Siegloch |
| Abstract: | This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities exploiting 6,800 tax changes for identication. Using event study designs and differences-in-differences models, we find that workers bear about half of the total tax burden. Administrative linked employer-employee data allow us to estimate heterogeneous firm and worker effects. Our findings highlight the importace of labor market institutions and profit-shifting opportunities for the incidence of corporate taxes on wages. Moreover, we show that low-skilled, young and female employees bear a larger share of the tax burden. This has important distributive implications. |
| Keywords: | business taxation, incidence, administrative data, local taxation |
| JEL: | H20 H70 J30 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_241&r=pub |
| By: | ZEW |
| Abstract: | The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU28, FYROM and Turkey as well as Norway, Switzerland, Canada, Japan and the United States for the period 1998-201 and their impact on the level of taxation for both domestic and cross-border investment. |
| Keywords: | European Union, taxation, effective tax, corporate tax, enlarged European Union |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0066&r=pub |